ESG Sustainability in Real Estate – how it makes dollars and sense

Sustainability in Real Estate –

Adopting ESG principles has become a strategic imperative in the Real Estate industry. The conversation has moved dramatically from a ‘nice to have’ to essential to incorporate into the strategy of the organisation. Multiple research papers have shown that when an organisation adopts ESG principles into their purpose, they gain greater brand recognition, attracting customers and employees, and thus enjoy a competitive advantage.

How does ESG Sustainability make a difference to your organisation? In this article we shall briefly try to examine the more obvious points:

Environmental

Research has shown that “green” buildings generate:

• Increased occupancy rates of up to 18%
• Premiums on rental of between 2% to 8%
• Utility savings of up to 15%

In addition to these, there are other savings that have been less-often quantified in research, but which both asset owners and tenants can enjoy:

• Efforts to reduce consumption, frills, and waste lead to more purposeful and deliberate purchases, and ultimately lower expenses.
• Reductions in waste and pollution lead to lower environmental liability risks.
• As governments increasingly tighten sustainability regulations, implementing the necessary measures in advance is likely less costly and stressful than the alternatives when the legislations are finally introduced: competing with everyone else for resources and vendors during crunchtime, or paying penalties for non-compliance.
• Buildings that are more resilient against climate and weather threats are also likely to incur lower maintenance, repair, and insurance costs in the long term.

Social

Taking care of people and societies works in the interests of Real Estate investors and occupiers:

• Keeping the workplace safe and secure reduces workforce liability, injury, and downtime.
• Enhancing wellness features in the workplace improves employee engagement and incentivises employees to utilise the work space more frequently.
• For businesses with overseas operations:
  • Empowering local communities may lead to additional sources of vendors and consumers in the long term.
  • Choosing to site operations in places with more advanced human rights and labour practices improves reputation, and also helps avoid fallouts and potential business interruptions from consumer boycotts or trade sanctions, for example.

Governance

Keeping the people who live, work, and play in buildings safe is critical. We have seen historical examples across the world where poor governance has led to compromises in construction and maintenance of buildings. These have resulted in catastrophic structural defects, often leading to loss of lives and reputations, accompanied by the comparatively less-tragic consequence of seeing a huge chunk of the balance sheet written off.

It is therefore important to:

1. Eliminate bribery and corruption, whether in dealings with regulators, vendors, or clients.
2. Implement robust audit and compliance measures.
3. Maintain accurate and timely records, especially in relation to maintenance work.
4. Institute whistle-blower protection policies.

Conclusion

In order to deliver on your ESG goals, is important for all parties – landlords, occupiers, and supply chain partners - to work together. It is only by collaborating and jointly investing resources that all parties will be able to unlock the collective benefits. Therefore, the conversation can be initiated and led by any party.

What's next?

This article only scratches the surface when it comes to what ESG Sustainability has to offer as an investment. For a more detailed discussion tailored to your organisation’s contexts and needs, get in touch with our expanding team of colleagues specialising in helping Real Estate firms design and meet their Sustainability objectives.