ESG in real estate: five questions organizations should consider

Marco forces amplifying ESG – Multiple market and societal forces have heightened the importance of ESG

The fight for Racial Equity and Social Justice – Working to achieve racial diversity, equity and inclusion is a renewed priority for companies looking to drive sustainability and overall performance.

Talent and customer attraction – Employees and customers are demanding organizations to stand for something beyond profit.

Sustainable investing from niche to mass market – Sustainable investing continues to expand into a major market segment, fueled by firms like BlackRock demanding corporate disclosure.

Biden Administration’s Bold Climate Change Agenda and SEC changes – The Biden administration has to bold climate agenda, and is focused on building a modern, sustainable infrastructure and clean energy future.

Shift to stakeholder capitalism – Stakeholder’s demands are forcing executive and decision-makers to rethink their organizations’ goals beyond maximizing shareholder value.

Rising global threats and associated opportunities from climate change – The seriousness and scale of the risks posed by climate change highlight the need to accelerate change through business innovation.

Key stakeholders within the real estate industry:
Tenants and their customers, Board of directors, Communities, Employees, Lenders, Government, Investors, Shareholders, Suppliers.

90% investors surveyed said that, since the COVID-19 pandemic, they attach greater importance to corporates’ performance when it comes to their investment strategy and decision-making.

80% investors surveyed said that a corporate having a strong ESG program and performance would have a significant and direct impact on analyst recommendations today.

The figure above is a 4-quadrant graph with X axis as 'Importance to the business' and Y axis as 'Importance to the stakeholders':

Quadrant 1 includes Safety and security, Talent growth and retention, Employee engagement, Tenant engagement, Risk management, Government relations.

Quadrant 2 includes Climate and energy usage, Health and wellbeing, Diversity, equity and inclusion, Gentrification and affordable housing, Corporate governance.

Quadrant 3 includes Data privacy, Water conservation, Biodiversity, Pollution reduction.

Quadrant 4 includes Transportation and traffic reduction, Waste reduction, Community engagement, Labor conditions, Human rights, Local economic impact.

Assurance in the US continues to increase in response to stakeholder pressures

29% - Current state of US ESG Assurance:

Only 29% of S&P 500 companies publishing an ESG report received external assurance. 90% of S&P 500 companies publish ESG report.

82% - Indications of the future of ESG Assurance:

Globally: 82% of members of a global member-based organization, the World Business Council for Sustainable Development, received external assurance on their ESG.

67% - Indications of the future of ESG Assurance:

Globally: 67% of investors believe ESG reports should undergo full audit, similar to financial audit.

Carbon emissions disclosure:

2017 – 38%

2018 – 41%

2019 – 51%

2020 – 66%

Energy usage disclosure:

2017 – 33%

2018 – 42%

2019 – 51%

2020 – 66%

Water usage disclosure:

2017 – 30%

2018 – 35%

2019 – 47%

2020 – 58%

Waste management disclosure:

2017 – 27%

2018 – 32%

2019 – 39%

2020 – 43%

REIT disclosures of social policies

Supplier screening:

2018 – 22%

2019 – 58%

2020 – 69%

Diversity and equity:

2018 – 49%

2019 – 62%

2020 – 89%

Health and safety:

2018 – 49%

2019 – 64%

2020 – 73%

Sources: “Trends on the sustainability reporting practices of S&P 500 index companies.” Governance & Accountability Institute, Inc. (2020), State of Sustainability and Integrated Reporting, 2018 Investor Responsibility Research Center Institute (IRRCI), NAREIT.

Embed ESG as part of all your real estate organization's board committees to enhance cross-functional effectiveness and innovation:

Corporate responsibility and sustainability committee

Finance committee

Executive committee

Strategy and planning committee

Compliance committee

Risk committee

Technology committee

Public policy committee

R&D committee

Nominating and governance committee