ESG (environmental, social, governance) is used as a framework to assess how a commercial real estate portfolio manages risks and opportunities that shifting market and non-market conditions create.
Environmental criteria addresses a company’s environmental impact and environmental stewardship.
Social criteria refers to how a company manages relationships with and creates value for stakeholders.
Governance criteria refers to a company’s leadership and management philosophy, practices, policies, internal controls, and shareholder rights.
Growing trends in RE suggest that ESG has become a key differentiator and provides organizations with a competitive advantage leading to improved long-term financial performance.
In 2019 and early 2020, there was a resurgence of climate change awareness, inspiring many to take action and causing capital markets to react like never before. Industry leaders such as BlackRock, Goldman Sachs and Blackstone, among others, have announced how ESG will be a key factor in investment assessments moving forward.
Proof is critical to ESG. Until now, the industry has mostly dealt with greenwashing without real impact. Yet, with the market demands for demonstrable carbon reduction impact, many owners are struggling to find a path forward amid the pandemic’s complicated economic impacts. The one aspect of the ESG commitment is clear, Moving from Opportunistic sustainability initiatives to value-driven ESG metrics that are Core to Business deliver long term value.
Here are strategies that capture the levels of commitment to sustainability.
Data-backed ESG will continue to drive advantages for CRE in 2021. Maximizing a building’s energy usage through ESG measures directly impacts overall net operating income and subsequently can drive increases in asset value upon disposition. If an owner ultimately wants to sell a property, they’ll be more likely to attract investors, and for those buying, ESG will be a crucial qualifier when deciding which properties to invest in.