It’s already near the end of February – a bit late, but we’re making a call: ESG looks like the acronym of the year.
This worthy commitment to environmental social and governance frameworks is storming the capital markets, worming its way through corporates and it’s now in the jobs market, as people wonder what they themselves are doing about the crisis that’s arrived.
At the top end of town it’s the board that’s worrying whether the old breed of leader is purpose fit for the future.
This week we had a long interview with Matt Gutheridge of Russell Reynolds whose company is typically retained for “long-term succession planning” as he put it, for large listed and unlisted companies – “anything from leading the top team to effectiveness type programs, large scale leadership assessment and development type programs, in general.”
What came through loud and clear was the focus on ESG. The world has changed and now boards are looking for their companies’ leaders to be future fit.
Guthridge, who made it clear his company does not do media as a rule, has an impressive background in Boston Consulting and McKinsey & Co before he took on the current gig in 2020, admitted he needs to be a bit of a futurist in his job to help select chief executives and other senior staff.
He says leaders today who don’t comprehend the complex systems that drive economic, social and environmental change and who “can’t join the dots” are unlikely to succeed in this changeable world.
Sticking to the law and regular governance won’t cut it either.
He pointed to Rio Tinto which blew up the Jukaan Caves in May 2022, in the meantime blowing up its own reputation.
The action might have been legal “legal” but it was also desperately unacceptable on so many other measures.
There’s a lot more in this intriguing story and we hope to bring it to you soon.
Meanwhile at UTS’s Sustainable Temporary Adaptive Reuse (STAR) workshop on Wednesday (more on that too soon) we caught up on with Jenine Cranston, partner and head of ESG for Knight Frank.
It’s about a year since she took the job and we were really keen to know how it’s going. Most importantly because Cranston comes from the transactional side of commercial real estate, which we think is a critically important cog in the wheel of the sustainability transition (as anyone who reads this publication will know).
Agents – let’s say it again – tell their clients what to think, how much to spend on the refurb, what kind of refurb they need and pretty much what colour to paint everything.
OK we may be exaggerating on the last bit; maybe not. The extent of evidenced based thinking in property development is thin to non-existent – it’s what the bloke down the road has done.
But agents are certainly switched on. Cranston calls the sector the super highway of information. Their bread and butter depend on it.
And now Cranston says the tables have turned.
They always listen to their clients and their clients now want ESG screening for the assets.
(“Where the dollars go, there go I.”)
“It’s absolutely clear that capital is leading this discussion; it’s all about the investor – and from the agency perspective that means a pretty pragmatic conversations I can have with my brokers in leasing and sales because when they have an asset decarbonisation roadmap in place for their clients then their race with local capital will be more competitive and [at sale time] more saleable.”
Is the pressure coming from Europe?
Cranston says Australia has a very diverse capital base as it’s considered a safe haven, with its good infrastructure, good rule of law and a “very forward thinking commercial development pipeline with some of the best assets in the world”.
The evidence is in that greener buildings have better returns.
The company’s recent Active Capital global research document, generated in London, last year found 300 sales rated five and six star NABERS energy showed an 18 per cent premium in values and even lower rating had an 8.3 per cent premium.
Cranston’s job is to make sure the agents are confident they can understand ESG concepts in dealing with the clients. And that “they can speak their language”.
Done right, the ESG framing makes the asset easier to sell, she says. And easier to attract tenants for whom ESG is not just nice to have but a commitment.
“So there are financial imperatives which makes a powerful imperative in the agency world.”
For tenants too, the days when landlords were afraid to talk to tenants and tenants refused to cooperate with landlords are gone.
The Fifth Estate years ago wrote an entire series of ebooks titled The Tenants and Landlords Guide to Happiness to highlight what might happen if everyone cooperated instead of dug their heels in.
Things have certainly changed. In one case, says Cranston, a tenant is refusing to speak to a landlord unless they can bake a roadmap to net zero into the lease.
That’s the story we want to hear.
So how widespread is the ESG message with agents?
“The smart ones get ESG now,” Cranston says.
“I can only speak to our team – but I think it’s widely acknowledged that investors are driving this conversation. Good sales agents are smart enough to know where the capital is coming because it makes them better.”
People from other industries want to make the leap
Not surprisingly when you think about it, but Cranston says she’s getting more than a few quiet chats from people in other industries to ask how she made the transition to ESG from the transaction side of property. They’re keen to do something similar.
In related studies she did at Cambridge she noted people from “all facets of industry and corporate life” taking the same course and most of them doing it as a “purpose projects” because, essentially, they were interested and motivated for the sake of the information itself.
What characterises these people? we asked.
Cranston says they tend to be optimistic, “deeply intelligent” and “curious, transformational types”.
She suspects they stand a high chance of making it in the new roles.
Her advice? “Never hold back on additional study. When I did an executive course it said to my boss, ‘this person is committed’”.
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