Building owners are now looking at ESG requirements to respond to both their tenants, employees and shareholders.
While ESG is getting a lot of coverage these days, it is still an alien concept to many. ESG stands for Environmental, Social and Governance. This may be a bit confusing and misleading for some of us, so we are summarising this in the following few points:
- Environment covers all things related to the physical environment. This is what most people assume when a conversation focuses on sustainability. This covers everything from hazards, pollution, mitigation strategies for wastewater, handling of waste and rubbish, consumption of electricity and the likes, i.e. "being green".
- Social factors are all items that impact potential working conditions, human rights, health and safety aspects of real estate and its surroundings. This can be from designing and operating parks to open spaces, social activities, space engagement etc.
- Finally, Governance refers to how a company, owner, corporate or even statutory authorities are implementing the management of these factors. Likely in the form of commitments, charters, and company regulations, such policies around governance are a crucial element of the conversation.
Building owners are now looking at ESG requirements to respond to both their tenants, employees and shareholders. The maintenance of a building directly impacts the bottom line, and the ability to pivot and react to a fast-changing market is essential to the future of business practice.
"Engaging with ESG is increasingly important. However, this needs to be checked against roadmaps to success."
It is great to see commitments to ESG. There is a need to structure and understand how to reach lofty ambitions. Without a strategy and a process, all that is seen is greenwashing and the most critical point is to measure success against objectives.
There are several tools we can use to measure all these. A great tool to measure the energy efficiency of a building's operations is the Energy usage intensity (EUI) indicator. The reporting standard GRESB also creates a structured, well-recognised and well-respected process of data collection and reporting. It is essential to be able to measure the output of an asset before being able to solve any of the issues. New technologies allow asset managers to look at their buildings and assess how they perform and therefore create an opportunity to design a strategy to ensure the assets are being run effectively.
This is not just tied to 'doing the right thing' anymore – there are real, tangible benefits to owning and investing in ESG real estate. This combination of factors including better covenants, lower operating costs (with an investment into the technology), future-proofing, ensuring 'stickiness' of existing tenants, reduced workload and social pressures and improved immediate geography leads to better marketability, less attrition and therefore improved returns.
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