Still reeling from the shock of this year’s events, many real estate companies are focusing on adapting to massive business disruptions and developing ways to ready their assets for a safe reopening, whenever it is deemed safe to do so. However, as the global pandemic drags on, businesses also need to start looking toward the future, finding ways to ensure they’ll continue to have access to capital in the coming years.
Sunil A. Misser, CEO of AccountAbility, a global ESG (environmental, social, governance) consulting and standards firm, says in a post-COVID, Black Lives Matter-aware society, the real estate sector’s business priorities now demand greater ESG disclosure.
“Real estate companies and building managers need to report to investors and shareholders on the economic impacts of rent collection losses, evictions, and foreclosures. They need to prioritize stakeholder health, safety, and wellbeing when taking responsive, calculated, and balanced actions to continue operations,” Misser says. “They must communicate effectively to instill tenant trust and promote the responsible social behavior required for business continuity.”
In a post-pandemic world that stresses more work, shopping, and education from home, real estate firms will need to demonstrate proactive ESG risk management by highlighting an asset’s value despite widespread transitions away from traditional office and retail environments.
Pandemic recovery operations will require that boards and senior management understand, assess, manage, and communicate about corporate ESG risks. These risk planning activities all require greater ESG disclosure, says Misser. And some disclosure will be much more data-intensive than some real estate firms may currently be used to.
“For instance, companies will need to actively track, monitor, manage, and report supply chain risks and key performance indicators for transparent and informed decision-making,” Misser says.
And the real estate industry will not be immune to social responsibilities and obligations.
“Fair and affordable housing is gaining attention in the current world environment as a human right—not only for economic parity, but also through the lens of diversity, equity, and inclusion to mitigate disproportionate ESG risks for vulnerable populations and minority groups,” says Misser. “Real estate companies are increasingly expected to demonstrate how their ESG strategies protect low-income populations and at-risk communities.”
He adds that the legal implications of tenant contracts—such as increased use of force majeure clauses when tenants can’t pay their rent—have made it important for real estate companies, local lawmakers and community development organizations to “form fast-acting, collaborative working groups.”
Environmental Concerns are Here to Stay
Leigh Anne Bishop, an ESG expert at business consultancy BrandExtract, believes investors’ worries about the environment won’t be going away anytime soon, even as social issues have taken on more prominence and companies deal with the challenges of a global pandemic.
“The focus on the ‘E’ in ESG has certainly had its heyday with climate change and easy-to-report carbon emissions metrics,” she says. “And investors now realize how important the ‘S’ and the ‘G’ are, as well. But ESG investing and reporting has a lot to do with risk management and transparency about that risk. And risk isn’t isolated to one part of your business—it covers governance, social and environmental aspects.”
“No one forecasted a global pandemic. But if companies are going belly-up in a heartbeat, that’s a problem—and it’s a clear indication they aren’t looking at their business from a 360-degree angle. It’s a three-legged stool for a reason,” Bishop says. “We see the better prepared, better-managed companies sustaining these blows better than others.”
Bishop believes ESG reporting is quickly becoming the new annual report—an essential management tool that helps companies identify and mitigate risk, address operational inefficiencies, attract and retain talent, and strengthen their brands.
“Real estate companies are increasingly expected to demonstrate how their ESG strategies protect low-income populations and at-risk communities.”Sunil A. Misser
“Developing a clear ESG strategy with consistent reporting is an important reference point for investors and stakeholders alike. Without it, companies risk losing access to capital and the top talent needed for expansion or growth.” Bishop says. “How companies treat their employees and govern their business will continue to be as important as how they manage their carbon footprint.”
Misser believes addressing climate change continues to be a global imperative, with an escalating role for the business sector in achieving necessary environmental targets.
“Environmental concerns also serve as a logical entry point for ESG management due to its clear, direct connections to operational efficiency, waste reduction, and measurable bottom-line improvements—priorities that are particularly relevant in the industrial and real estate sectors,” Misser says.
Climate, Social, and Business Risks Are One in the Same
CB Bhattacharya, head of sustainability and ethics at the University of Pittsburgh, says the residents of metropolises worldwide need only look out their window to see how the pandemic has highlighted the importance of environmental issues.
“There are now blue skies over Beijing, Los Angeles, and Delhi,” says Bhattacharya, holder of the Zoffer Chair of Sustainability and Ethics at the University of Pittsburgh. “As lockdowns wore on and the streets of many cities cleared of traffic, there has been a realization that climate change is truly manmade—and that it is in our capacity for it to be reversed. Some hard but very real and crucial facts have been brought to light by the pandemic—that companies need to focus not just on profit, but also people and planet.”
And in a post-pandemic world, ESG disclosure becomes an imperative.
“Disclosure is a hygiene factor for doing business today,” Bhattacharya adds. “Institutional investors are clamoring for more disclosure. If the financial markets essentially demand disclosure, then disclosure will rise. And the good thing about disclosure rising, is it really does put pressure on companies to do something in the first place.”
The pandemic has exposed the interconnectedness between businesses and the broader world in which they operate. This, says Misser, combined with the changing face of the world we operate in, has created new dynamics where ESG disclosure— reviewed and assured with the same rigor and relevance as financial information—is now more important than ever.