How to staff for sustainability

As ESG becomes more important to investors and reporting more onerous, firms evaluating how to man their efforts find myriad options.

The head of sustainability for Shorenstein Partners takes his mandate seriously, even in his commute. Jaxon Love cycles to the firm’s San Francisco headquarters, where his day could involve talking city legislation with government officials, boilers with engineers or health and wellness trends with investors.

Love, who joined the vertically integrated firm in 2012 as its first sustainability program manager, says he wears many hats in his role. Underlying his various tasks, from technical operations to investor communications, is a passion for sustainability he says his peers across the industry share.

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As investment managers eye more onerous sustainability reporting requirements and increasing investor interest in sustainability, particularly as American investors catch up to their peers, general partners must consider how best to staff their efforts. One New York-based recruitment executive says the positions are generally created from within organizations or added onto an existing employee’s duties.

Even the largest firms are divided on hiring a dedicated sustainability executive or not. Of the top 10 names on PERE’s annual list of the largest private real estate investment managers, six staff such functions, though some of the roles have cross-asset class mandates. One, Boston-based AEW, has a sustainability committee co-led by its vice-president of architecture and engineering and its director of asset management.

Shorenstein’s approach to the human capital side of sustainability demonstrates how firms are changing. The firm, which oversees $7.9 billion, operated with a sustainability committee, rather than a dedicated employee, for five years, before Love joined. Back then, sustainability efforts at the 290-person firm already included LEED certification, ENERGY STAR benchmarking and tenant engagement activities.

“These things were starting to take off at the time and were becoming a fairly significant part of multiple people’s jobs,” Love says. “The decision was made as an organization that there seems to be a trend here that’s going to continue, and we should resource this appropriately.”

Initially, Love was tasked with tracking and measuring the firm’s existing sustainability footprint, then to implement a process to manage and quantify it over time. As more US cities added reporting requirements over the years, Shorenstein could pull existing data, rather than hiring a consultant to manage the process, Love says. Now, his mandate is to think strategically about adding value and emerging trends, such as health and wellness.

He continues to work with the sustainability committee, which meets monthly and includes representatives from the firm’s various departments: transactions, asset and property management, human resources, IT and accounting. Other firms take a similar approach: AEW’s committee is set up with functions including asset management, research, risk management and legal and compliance, among other verticals, reporting up to the co-heads.

“Think of that committee as the nervous system for sustainability throughout the organization,” Love says. “It allows information to flow in both directions so that I can learn what’s going on throughout the organization and hear good ideas that come up, because a lot of folks are interested in this topic personally and have a passion for it.”

In one recent example, he says the capital transactions team asked for materials to help new analysts understand how sustainability works and how they play a role.

Tracking success

Some elements of a sustainability manager’s job are more easily quantified than others. Before Love joined, Shorenstein set a goal of reducing energy usage by 20 percent from 2008 to 2020 – a goal the firm achieved last year, which saves $6.5 million annually. Meanwhile, last year, the firm completed 58 efficiency projects, saving $650,000 annually. Love highlights that while he played a role in those reductions, credit goes to the entire organization, particularly property managers and engineers. He also works on tenant engagement, which is more difficult to quantify but is “an intangible component of attracting and retaining high-quality tenants.”

As he continues these existing mandates, Love’s job is further expanding in scope to include more of the social portion of ESG.

“As investor inquiries have matured, we have matured as well. We for a long time as an organization had a very strong sense of purpose in the community about giving back, but we didn’t talk about it in the context of sustainability – sustainability was the green stuff,” he says. Now, the annual sustainability report includes information about that concept.

Alternatives to an ESG head

Smaller firms that lack Shorenstein’s size and scope often tack sustainability onto an employee’s job description. Irvine, California-based private equity real estate firm Avanath Capital Management, for example, originally tasked chief operating officer Jun Sakumoto with overseeing ESG initiatives for the firm, which manages 67 properties. As his role expanded, the multifamily-focused firm tapped its vice president for fund management, Ada Arevalo, for the mandate. She focuses largely on sustainability reporting and interfacing with investors, including organizing the firm’s first impact investing conference this summer. Meanwhile, Avanath’s asset management group manages on-the-ground projects.

About six years ago, the firm took a closer look at its sustainability practices when it acquired properties in Sacramento, California. At the time, Sakumoto said the firm did not underwrite any increases in water expenses following a drought. When water costs spiked, Avanath decided to install various improvements to lower utility usage. While Arevalo focuses on reporting, the property-specific ESG implementation is done by asset management and property management groups, which have a better sense of what individual assets need.

“It may not make sense to install solar panels on a property in Chicago, but it may make sense in California,” Sakumoto explains. “Compared to other private equity managers, we’re a relatively small firm. Once our portfolio gets larger, we’ll consider adding a full-time sustainability person. Right now, having the current team in place is working for us.”

– Meghan Morris