Few business trends compare to the growing necessity of environmental, social, and governance standards (ESG). ESG has transformed the real estate landscape, and it continues to gain momentum. ESG is no longer a buzzword. It’s a standard that businesses use to remain relevant and stay ahead of their competitors.
ESG is Good For Businesses
As consumers become more aware of environmental impact and investors continue to prioritize ESG metrics, businesses must keep up for financial success. Improving housing quality, disclosing company operations, and promoting community engagement helps companies build lasting relationships with their stakeholders. Reducing an asset’s carbon footprint and energy usage is good for the planet and good for business.
ESG Performance Can Enhance Financial Returns
Significant and long-term financial benefits can come from improving an asset’s impact. Many studies have shown that companies with strong ESG performance have superior financial performance compared to those with poor ESG performance. For instance, a survey conducted in 2018 by Morgan Stanley showed that companies with high ESG scores outperformed companies with low ESG scores. Here’s why:
- Environmental: The prioritization of environmental sustainability results in more efficient business operations, lower costs, and better preparation for changing environmental regulations.
- Social: Investors are increasingly taking into account a company’s ESG performance when making investment decisions. Similarly, consumers are more likely to engage with brands that are environmentally responsible, socially responsible, and ethical. By adopting ESG standards, companies can attract new investors and customers while retaining existing ones.
- Governance: the “G” in ESG – remains an uncontroversial method of ensuring all risks which can impair the economic livelihood of companies are appropriately managed. Having a board of directors that regularly assess these risks protects shareholder value.
Comprehensive Risk Management: Safeguarding and Augmenting Shareholder Value
The concept of risk is intrinsic to the dynamics of business, encompassing a wide spectrum of uncertainties that can affect a company’s performance and value. These risks may include financial, operational, strategic, and reputational risks, among others. In this context, the role of a board in reviewing and managing these risks is crucial for safeguarding shareholder value. By meticulously evaluating potential threats, the board can implement proactive strategies that not only mitigate risks but also capitalize on opportunities. This approach aligns with the interests of all stakeholders, subtly acknowledging their role in the company’s success without compromising the focus on shareholders. In essence, a comprehensive and balanced approach to risk management by the board can serve as a bulwark against uncertainties, enhancing the resilience of the company and ultimately protecting and augmenting shareholder value.
The Future Belongs To ESG
ESG is the future of business success. Companies that adopt ESG standards are more likely to experience long-term financial benefits, reduce risk, and attract investors and consumers alike. Real estate companies should be working towards ambitious goals and, in doing so, recognize that the financial rewards from ESG match the ethical benefits.