Written by Nick Lee, SIOR, CCIM and Jeremy Brubaker
The Importance of Environmental, Social and Governance (ESG) in Commercial Real Estate
The importance of Environmental, Social and Governance (ESG) in commercial real estate is undeniable. ESG has become a strategic imperative for portfolios to create sustainable and responsible businesses, while meeting the demands of investors, tenants, and employees. According to PWC’s Emerging Trends in Real Estate 2022 report, eighty-two percent consider ESG when deciding on investments and operation initiatives. Risk management and tenant/investor requirements are close driving factors.
Environmental
In recent years, investors have become more concerned with the environmental sustainability aspects of commercial real estate investments as climate change has gained traction in global popularity. The need increased even more after regulators implemented stricter policies regarding sustainability, which drove up investment into green buildings and clean energy infrastructure so companies can better manage risks associated with complying to these regulations with minimal impact on profits.
Social
Corporations are expanding their approach to social responsibility by implementing business practices that promote workplace health, wellness, inclusion, and diversity; they also consider community impact when making decisions about future developments. These types of organizational practices can minimize the risk for all investor stakeholders involved. Those who are willing to rethink their traditional investment models and consider the needs of the local communities will present the best opportunities for social impact investing.
Governance
Good governance practices are an essential part of any company’s ability to build trust among its stakeholders. As such, corporate structures that adopt ESG frameworks can better identify negative operating conditions, which might otherwise draw target audiences away from their business. With the demand for transparency taking precedence for government watch dogs and shareholders alike, proactive real estate investors will need to make sure their governance supersedes current regulations by implementing robust processes and policies.
In conclusion, although financial performance is an important measure of success, it is not the only one. ESG objectives are also critical and provide valuable insights into how well a company is performing overall. As more and more investors are looking at ESG data, organizations that ignore their ESG performance will likely fall behind those who take it more seriously. By tracking and measuring both financial and ESG objectives, organizations can create a more holistic view of their success and identify areas for improvement.
Nick Lee, SIOR, CCIM: nlee@nairl.com, 214-256-7121
Jeremy Brubaker: jbrubaker@nairl.com, 214-256-7118
