Prioritising ESG in Commercial Real Estate Through Smart Technologies
Environmental Social Governance (ESG) in commercial real estate has become a strategic imperative for asset owners and investors. A range of factors have contributed to its surge in popularity. Among these is a growing acceptance that changes urgently need to be planned and implemented in response to climate change. There is also an awareness of the social impact of growing populations and shifting social, economic, and environmental landscapes.
Real estate ESG and its quantitative benefits underscore the need for transparency for stakeholders and detailed focus on corporate governance. This is being driven by investor demand, tightening statutory regulations, and ethical and environmental considerations. With ESG gaining commonplace status within commercial real estate, the adoption of meaningful ESG processes and practices dictate ongoing relevance and competitiveness.
Digital transformation and smart technology processes like smart buildings have an intrinsic and powerful role to play in ESG in real estate. In its 2023 Commercial Real Estate Outlook, Deloitte put forward an ESG focus and the use of technology to improve efficiency and to meet the changing needs of tenants and stakeholders as paramount for commercial real estate companies.
What is ESG in real estate?
Broadly speaking, ESG are the three columns of a business’s, building’s, or investment’s positive processes. It also alludes to the entity’s management of risks and opportunities in a fluctuating global context.
What are the frameworks of ESG in real estate?
ESG in commercial real estate is complex in that there is no uniform measurement for ESG issues. These can be impacted by factors such as environmental, social, and economic landscapes, industry, and business models for example. That said, emerging regulations and voluntary frameworks are guiding commercial real estate owners in making ESG-positive changes. These frameworks are also working to standardise ESG reporting, a keen focus for investors.
Examples of these include the Sustainable Financial Disclosure Regulations (SFDR), which applies to the EU and anyone marketing financial products to EU investors. The equivalent in the United Kingdom is called the Sustainable Disclosure Regulations (SDR). These two sets of regulations aim to prevent greenwashing by guiding what sustainability metrics need to be reported on and how.
What are the ESG criteria for real estate?
Environmental
The climate change emergency demands action. Tightening regulations reflect the urgency of this. Around the world, the Paris Agreement, State-enforced thresholds and reporting, carbon taxes, and growing environmental jurisprudence are changing how we live and do business.
Smart technologies have the potential to create a roadmap for environmentally sustainable changes within buildings. They are also a powerful tool in guiding implementation, measuring successes and ROI, and ensuring precision reporting.
Smart energy monitoring and utility metering are a starting point. These simple, scalable solutions can easily extend into the minutiae of every industry, however. For example, occupancy monitoring makes buildings more responsive around things like lighting and heating.
Preservation of natural resources is another central environmental consideration. Reduced wastefulness in everything from energy and water to food waste and cold chain logistics and asset tracking and monitoring all have roles to play.
Smart bin monitoring within the smart city context streamlines waste management and reduces congestion and emissions associated with unnecessary collections. As populations become more urbanised, IoT insights could prove invaluable in city planning around increasing numbers of people.
Digital twins optimise building processes and, within the construction phase, can be used for building information modelling to ensure sustainable construction and minimised wastefulness.
Social
Social justice issues are becoming increasingly mainstream and fall firmly within sustainability concerns for business. Human health and wellbeing are coupled as one element of this. Within the built environment and in monitoring pollutants, air quality is an example of the social role played by ESG initiatives.
Smart air quality monitoring ensures tenant wellbeing and also has the scope to guide smart cities for community wellbeing around air quality. The sensors continually monitor air quality and report on undesirable changes to inspire action.
Within work environments, smart technologies support work environments that are human-centric, geared towards productivity and reducing risk around everything from burnout to fire safety and compliance metrics. In keeping with shifting workplace ideals, the investment in tech and wellbeing has the potential to attract top talent and affect worker retention.
Cybersecurity is also a factor to consider here. The benefit of zero trust security models includes the protection afforded against cyber threats and data breaches.
Governance
Ethics and transparency are important focus points for investors, especially against the backdrop of emerging regulations and voluntary ESG frameworks. Smart technologies allow for data analysis and reporting for evidenced alignment of values, management policies, and actions around ESG. This data extends to monitor and report on ESG initiatives’ impact on building occupants and the surrounding community.
Another component of good governance is risk management. Smart technologies reduce risk by monitoring assets and buildings in real time. Through pre-programmable thresholds for myriad different metrics, alerts are sent for instant action in response to undesirable trends, whether regarding workplace safety or natural disasters.
What do investors look for in ESG?
In Deloitte’s 2023 Commercial Real Estate Outlook, surveyed participants listed inflation, workforce management, cybersecurity risks, and climate regulation as the areas currently with the greatest impact on profitability. It has also pointed at the adoption of digital technologies as a widespread trend in the industry.
The same report indicates that only 12% of surveyed participants are prepared for immediate implementation of statutory ESG requirements. Only 7% of these use data and analytics to guide strategy. Data is the simplest and most effective way for commercial real estate owners and investment companies to meet regulations, control tax around ESG imperatives, and fuel transparent reporting.
The rapid adoption of ESG has made ESG data financially consequential in investment decisions within the commercial real estate industry. It has become a central consideration in assessing statutory risk and suitability for purpose in a sustainability-focused world.
Some primary considerations for investors around ESG include the following:
Tenant demands are changing
Tenants are more environmentally conscientious than ever – and they are willing to pay more to occupy sustainable buildings. The implementation of tech-supported sustainability practices means smart commercial buildings provide improved efficiencies, a reduction in operating costs, increased occupancy rates, and improved tenant retention. This all plays into improved return on investment.
The human element doesn’t end with tenants. Investors will evaluate how interactive and responsive buildings are to visitors and neighbouring communities – prioritising wellbeing today and into the future.
Sustainability is About More Than Energy Efficiency
Investors will assess the entire real estate ecosystem – from sustainability of building materials, utilisation of natural light, and efficient water solutions and waste management to impact on the community – in looking at ESG.
Accountability and Transparency
The days of paying lip service to environmental, social, and business ideals are over. Investors today are looking for transparency and accountability to stakeholders. There is no better way of achieving this than ongoing data analysis and reporting.
Financing Favours ESG
By prioritising ESG factors, investors can negotiate favourable terms and attract investment from like-minded investors.
Collaborative and Technologically Driven Changes
It comes as no surprise that digital transformation is making ESG initiatives more collaborative and effective. Smart technologies like those from Smarter Technologies Group monitor whole operations (across multiple locations as needed) in real time, which provide actionable insights and create real scope for collaboration.
The true success of ESG endeavours relies on many stakeholders and government entities. Again, this is where data-level reporting supports collaboration. Smart Commercial Real Estate simplifies ESG and provides exciting opportunities for buildings to optimise processes. Contact Smarter Technologies Group today to find out more about how our solutions support ESG in commercial real estate.