ESG (environmental, social, governance) has reached a pivotal moment in the commercial real estate industry. Some sustainability-focused companies are advancing ways to leverage improved ESG data and insights, while many others are just starting out.
In a recent Measurabl webinar, Sara Anzinger, Senior Vice President of Capital Markets, and Eric Abramson, Customer Success Manager, broke down the fundamentals of ESG, explained the market forces behind the shift from “green” to ESG, and the advantages of building and continuously improving your ESG program. Though we recommend that you listen to the full presentation, here are key takeaways.
A Fundamental Shift from “Green” to ESG
Over the past decade we’ve seen a shift in the way we talk about sustainability. Though it was once referred to as “green”—meant to lessen a company’s negative impact on the environment—the concept of sustainability is now being broadened to consider a company’s:
- environmental impact (E) as well as climate-related factors that can put the company’s assets at risk
- social (S) ecosystem, and the way it manages relationships with employees, suppliers, and communities in which it operates
- governance (G), which encompasses leadership and policies around executive pay, audits, diversity, and other issues.
But the shift from “green” to ESG does not just signify a change in vernacular—it also reveals a fundamental change in the way businesses view and address these issues. In many cases, companies have evolved from a siloed approach, in which the work falls under the purview of a sustainability expert or committee, to working toward a complete ESG integration into core business functions.
Externally, investor pressure is certainly mounting, as stakeholders have developed a distaste for “greenwashing” and now demand metrics that verify a company’s sustainability efforts are impactful. In many cases, ESG data is viewed on par with traditional finance data, as there is mounting evidence that a company’s ESG performance correlates with its financial health. ESG has also become integral to raising capital, as ESG metrics are often incorporated into due diligence and insurance underwriting processes. Consumer preferences and tenant expectations are prevailing factors, as many companies have their own ESG performance indicators to consider when renting or purchasing commercial real estate spaces.
One Step at a Time
Our poll indicated that more than 60 percent of our webinar attendees were new to ESG, which was not surprising. The ESG Era is certainly here, but many leaders in the commercial real estate industry are just now getting handle on how to gather and incorporate ESG metrics into their businesses.
There are three essential steps or “phases” of the ESG journey, but like many initiatives that are meant to have a long-lasting impact, ESG requires a flexible, iterative approach with room for constant improvement.
- Collect — Whether you ultimately want to report to GRESB, take advantage of sustainable financing, or you simply strive to keep investors happy, the first step is to start gathering all of your available data around ESG. Quantifiable data on energy and water consumption, waste diversion, and carbon emissions is often a good place to start, because companies often have this on hand from utility bills. It is fine to start small: You can begin by looking at only a few assets, or collecting specific data like energy consumption to establish a baseline. Regardless of scope, the key is to centralize this data, and ideally automate the collection process to save time and prevent human error.
- Disclose — Ready to show off your performance and find out how you stack up against your peers? Whether you want to report internally to your board, or externally via a corporate responsibility report or to a public framework like GRESB or CDP, there are numerous options available. Another option is to apply for green building certifications, like LEED or BREEAM. Whatever route you choose, it’s essential that you determine what’s material to your company so you can own your ESG narrative.
- Improve — Let’s say it’s been a year or two since you embarked on your ESG journey. You’ve reported to GRESB or another group, and now you’ve established a baseline. Obviously, perfection is never expected right off the bat, and now you can determine what you need to improve. Collecting and disclosing, though they may be challenging the first time around, often reveal gaps in your available ESG data or processes and illuminate areas of improvement. It can be especially arduous to collect this information once a year, which is why we recommend gathering ESG data on a continuous basis. This can also help you determine if you’ve answered the right questions the first time, and discover new areas of focus in order to make a real impact to your ESG performance and, in many cases, your bottom line.
What Do You Have to Gain?
Though it may seem intimidating at first, starting an ESG program within your company can pave the way for a number of benefits. Better data can provide clear guidance on improving business operations, acquisition and due diligence processes, capital expenditures for retrofits and future proofing projects, and more. Owning and disclosing your ESG performance can also lead to greater access to better capital and the ability to take advantage of growing opportunities in sustainable finance.
At the heart of all of these efforts—the glue that really binds them together— is accurate, investment grade data. While building certifications and benchmark scores are often a proxy for ESG performance, in-house metrics provide much deeper and more granular insights on a company’s impact.
To learn more about the ESG journey and the potential benefits within reach, watch our latest webinar, “Hitting Key Milestones Along Your ESG Journey.” You can also register for our next live virtual event on August 11, 2020, as we sit down with USAA Real Estate to discuss the company’s experience growing its ESG program with Measurabl.