Why ESG in Real Estate Matters
Integrating ESG into real estate and the built environment is essential to combating climate change.
By Madeline Hinchliffe
Integrating ESG into real estate and the built environment is essential to combating climate change. Within the United States, 41% of primary energy consumption and 13% of freshwater withdrawals go toward buildings and infrastructure. Stakeholders—including building occupants, governments, and the general public—are demanding ESG-centric portfolios, and for good reason. They seek tangible, measurable commitments to reduce a building’s ecological footprint while simultaneously upholding sustainable practices.
There are many ways in which incorporating ESG into real estate can create meaningful change. Pathways include reductions in resource use as well as improvements in employee and community engagement. ESG contributes to transparency through ordinance compliance and utilization of reporting mechanisms.
Let’s dive deeper and consider how real estate is affected by key ESG areas.
Energy and water usage, as well as waste management within buildings, are the baseline components of the environmental part of ESG in real estate. Reductions in resource use benefit the environment and reduce utility expenses. Real estate portfolios can reduce their environmental impact by designing for smart energy usage in new construction. They can incorporate renewable energy and/or projects that decrease electricity requirements, such as LED retrofit projects in existing buildings.
Nearly 40% of annual global GHG emissions are from building construction, operations, and demolitions. This provides a massive opportunity to reduce emissions in the building sector through renewable, more efficient energy usage. Water reduction projects include installing low-flow plumbing, smart irrigation systems, and xeriscaping techniques.
Around 47% of the world’s population live in water-scarce areas, a percentage projected to increase to 57% by 2050. Reducing waste sent to landfills can occur upstream or downstream. Diverting waste from landfills can facilitate recycling and composting, cutting paper and packaging needs. It can also reduce production of methane, a greenhouse gas that accounts for 20% of total GHG and is 25 times more potent than carbon dioxide in terms of warming the Earth. Implementing energy, water, and waste projects within buildings are steps that conserve resources and cut costs. In public perception, these steps highlight a real estate portfolio’s commitment to sustainability.
Without the social component of ESG in real estate portfolios, the built environment would struggle to achieve sustainable practices and initiatives. Real estate companies that champion sustainability and promote wellness typically see an increase in employee engagement, as shown in studies by GRESB in 2016 and, more generally, by the Economist Intelligence Unit in 2015. This engagement comes through educational and awareness programs that encourage sustainable practices throughout the company and within each building. These social components tie in with the environmental components as well. For example, when building owners add recycling signage for waste bins, building occupants understand where and how to discard materials appropriately.
A real estate portfolio that engages building occupants and employees in sustainability best practices gains buy-in from everyone involved. Real estate companies that involve their stakeholders and communities in sustainable events, charity drives, and interactive opportunities encourage individuals to implement sustainable practices in their lives while fostering change through education and inspiration.
Governance in real estate holds building owners accountable for resource reduction and other sustainable initiatives. It’s how transparency and accountability are being woven into all aspects of a company. Appropriate governance in real estate means that building utility data (and ESG data as a whole) is accurate and verifiable. While there are many governance components, compliance with local, state, and federal ordinances and upholding transparency through reporting mechanisms are obvious ways in which real estate companies can demonstrate their commitments to sustainability.
There has been a tremendous rise in benchmarking ordinances across the United States. Certain categories of buildings must report energy and water data annually. These ordinances can be voluntary or mandatory, depending on the location. Benchmarking ordinances include auditing and retro-commissioning requirements, such as New York City’s passage of a law targeting reductions in GHG emissions from buildings.
Real estate companies can contribute to positive changes in sustainability by actively supporting, participating in, and encouraging these laws and regulations. Participation in sustainability reporting frameworks—such as GRESB, CDP, and SASB—allow real estate companies to be benchmarked against peers. Participating in these scoring and reporting frameworks incentivizes companies to improve their scores.
In North America and Europe, people spend almost 90% of their time indoors. Real estate companies that own, lease, or manage buildings can lead the way to positive change by measuring and reducing building resource use. They can encourage employee and community sustainability endeavors. They can exemplify transparency and uphold ethical rules, laws, and regulations. The fight to reduce human-induced warming is impacted by how buildings are built and operated. Implementing ESG reporting systematically into real estate activities builds the basis for large-scale, profound changes toward a more sustainable built environment.
At The Global Imprint, we’re here to help you make sense of the ever-evolving ESG landscape. Reach out to our team to set up an introductory call or complete our ESG Readiness Survey to see where your company stands in sustainability metrics.