ESG Intro
ESG is a framework for investors to assess risk and opportunities related to environmental, social, and governance issues that are considered to be material to value of a property and business. Developers (particularly public corporations) are producing annual ESG reports which require lengthy data collection along with creating and executing sustainability strategies across their portoflio.
Environmental
“Environmental criteria may include a company’s energy use, waste, pollution, natural resource conservation, and treatment of animals. The criteria can also be used in evaluating any environmental risks a company might face and how the company is managing those risks. For example, are there issues related to its ownership of contaminated land, its disposal of hazardous waste, its management of toxic emissions, or its compliance with government environmental regulations?” [1]
Social
“Social criteria look at the company’s business relationships. Does it work with suppliers that hold the same values as it claims to hold? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do the company’s working conditions show high regard for its employees’ health and safety? Are other stakeholders’ interests taken into account?” [2]
Governance
“With regard to governance, investors may want to know that a company uses accurate and transparent accounting methods and that stockholders are given an opportunity to vote on important issues. They may also want assurances that companies avoid conflicts of interest in their choice of board members, don't use political contributions to obtain unduly favorable treatment and, of course, don't engage in illegal practices.” [3]
[1] [2] [3] ESG criteria descriptions sourced from Investopedia
Who does ESG apply to?
The short answer is everybody.
In business, ESG performance is used for investment decision making.
In the big picture, ESG reporting holds companies accountable to their impact.
Health is material to the bottom line.
Each of us are part of a global supply chain which ESG can help to monitor, such as safe working conditions, fair pay, clean air and water, non-toxic agriculture, and much more.
1/5 of our planet is threatened with desertification – which is fertile land becoming desert as a result of drought, deforestation, or inappropriate agriculture.
The result? Water scarcity, which is already a daily challenge for much of the ‘developing world’. Predictive forecasting shows by 2023, two out of three people will be facing water shortages.
This photo shows women in India picking cotton saturated in known toxic chemicals without protection which is a form of chronic poisoning. Everyone should have a right to health. Responsible leadership looks like monitoring one’s supply chain to protect those involved. When you buy certified organic textiles, you become part of the solution.
Climate Goals
On his first day in office, U.S President Biden returned the United States to the Paris Agreement and proposed carbon neutrality by 2050.
Although an important step and motivation for companies to set tighter goals, 2050 is not ambitious enough. Extreme weather events and disasters are occurring day by day caused by the changing climate – which we have a part in. To turn this Titanic around will require all hands on deck!
Attention is shifting from ‘E’ to ‘S’
Does the word sustainability conjure up images of trees? Up until recently, the ‘E’ has taken center stage as businesses invest in reducing their energy consumption which is reflected in lower utility bills.
We’re in an interesting time now where companies are being held accountable to their societal impacts. Specifically looking at the last couple of years, the COVID-19 pandemic magnified systemic injustices. People have been connecting the dots of inequalities between race, skin color, gender, sexual orientation, and physical ability. The disparities are demonstrated within healthcare (or sickcare, rather) and access to nutritious food, education, and financial opportunities.
Societal sustainability focuses on the ‘S’ as an opportunity to create value for real estate.
People on Balconies by Angelina Bambina
Beauty of the Sun by CityArt
How do you measure and report ESG?
Unlike financial reporting, there is no global standardization for measuring ESG, yet. New frameworks are emerging all the time. These are the commonly used frameworks for real estate benchmarking and the tools for reporting:
GRESB
GRESB is a mission driven and investor led organization providing standardized and validated Environmental, Social and Governance (ESG) data to the capital markets. Established in 2009, GRESB has become the leading ESG benchmark for real estate and infrastructure investments across the world. It is designed to help you to identify areas of risk and opportunity and deepen your engagement with investors.
CDP
CDP (Carbon Disclosure Project) is a not-for-profit charity that runs the global disclosure system for companies, investors, cities, states, and regions to manage their environmental impacts. CDP's data both fuels and tracks global progress towards building a truly sustainable economy for people and planet.
GRI
GRI (Global Reporting Initiative) is an independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.
TCFD
The Financial Stability Board established the TCFD (Task force on Climate related Financial Disclosures) to develop recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions and, in turn, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.
Measurabl
Measurable is an ESG platform built for commercial real estate. Measurabl is a scalable solution that can grow with an owner’s portfolio while collecting granular data.
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