The following is an excerpt of an article published in the Summer 2020 edition of the AFIRE Summit Journal
Sustainability has been a business concern for more than a decade, but often companies considered it a “nice to have” factor that did not foster substantial change to business practices. Now, sustainability efforts have been incorporated into a more holistic approach—namely, environmental, social, governance, more commonly called ESG. It’s not just the acronym of the week: Key stakeholders have come to expect companies to disclose their performance in these three areas, with some investors hailing ESG performance as important to determining business health as financial data.
The COVID-19 pandemic as well as the recent protests against racial injustice have not only underscored the importance of the social aspect of ESG—these events are accelerating ESG investing as a whole. From January to April 2020 alone, investors poured a record $12.2 billion into funds with strong ESG practices. 2019 saw a record $20.6 billion worth of investments into ESG funds, and one researcher predicts that ESG investing will at least double this year.
Though ESG may have only recently caught on in the commercial real estate industry, investors have long been aware of its power to indicate a company’s long-term profitability, ability to attract and retain diverse talent, and resilience in the face of unexpected disasters and disruptions.
Having an accurate record of positive ESG performance has been proven to help CRE firms:
- Improve access to cheaper, better capital through sustainable financing
- Increase the value of real estate assets and attract discerning investors and tenants
- Comply with city, state, national, and sector-specific reporting requirements
- Obtain investment-grade data with accuracy and completeness that stakeholders expect
- Lower operating costs and invest in projects that improve resilience in the face of physical climate risk
To keep up with the deluge of data required to give stakeholders a complete picture, ESG programs will need to get more sophisticated. Companies simply wouldn’t survive long-term if they documented all of their financial metrics manually. Now, we’ve reached a tipping point where the same is true for ESG metrics.
This especially applies to commercial real estate firms, which need to collect, track, and analyze ESG data from disparate sources across their entire property portfolios. Retail, restaurant, and office buildings were undoubtedly hit the hardest by the impacts of COVID-19, with commercial tenants facing heavy disruptions to their business operations, even with current efforts to reopen.
To ensure a more swift recovery and pave the way for improved resilience, firms need to incorporate technology into their ESG programs. Companies that embrace technologies to optimize their processes are able to save time on the mundane aspects of tracking ESG performance and can instead spend valuable time and resources investing in projects that truly move the needle in carbon reduction, employee health and wellness, diversity and inclusion efforts, and other organization-wide goals. They can afford to move beyond a “checkbox” approach to ESG and start making impactful changes by applying ESG best practices throughout the entire organization.