ESG: A chance to
regenerate and revitalize
the real estate industry

In recent years, the COVID-19 pandemic and the climate crisis led companies to accelerate their efforts to improve the work-life balance and the creation of healthy work environments, within a preexisting trend that has taken the center stage: ESG. 

Three letters that are expected to shape the value conversation in coming years

The ESG (Environmental, Social and Corporate Governance) criteria cover the environmental, social and governance elements to be considered when deciding whether to invest in a company.

Environmental criteria deal with how a company interacts with nature and the environment. Some of its most current issues include greenhouse gas emissions (GHG), the use and depletion of natural resources, pollution, loss of biodiversity, deforestation, marine conservation, circular economy, and the risk of natural disasters.

Social criteria refer to the relationship between a company and its social context (including employees, suppliers, clients and even the local community). Some clear examples are work, hygiene and safety conditions, labor relations, diversity, globalization, automatization and artificial intelligence, as well as urbanization, among others.

Governance criteria cover corporate governance and culture, as well as the quality of management. These include structural aspects of a company such as the composition, diversity and responsibility of its board, its fiscal strategies, measures against bribery, corruption or political lobbying, the protection of shareholders’ rights, transparency policies regarding public information and codes of conduct.

How are they measured?

To date there is no universal index or criteria for ESG, despite several attempts and initiatives to create standards and a common index. There are different methods in many markets around the world, while a number of issues vary depending on the nature of the business, and therein lies the challenge. The only point that is unanimously clear is that when a company misconducts, misuses information or dismisses any of the issues, there are consequences.

Moreover, being consistent through the years, applying and preserving these criteria in decision taking brings measurable benefits in terms of financial performance, compliance, risk management, brand and reputation, as well as being essential for talent attraction and retention.

The opportunity to create regenerative real estate

The ESG criteria are changing the market outlook both for investors and users. The pandemic brought more attention to the impact of buildings in the health and well-being of their users and the people in the surrounding environment. A clear sign of this is the increase in certifications that attest to the compliance of certain building standards and the added value of the asset. 

Shining the spotlight on the “E”: Green Buildings, Net Zero Buildings and Brown Buildings

The real estate industry accounts for 40% of greenhouse gas emissions. Therefore, environmental factors play an important role, and merit particular attention.

The World Green Building Council defines a “Green Building” as one that uses resources efficiently throughout its useful life (in terms of design, construction, lifespan and demolition), reduces its negative environmental impact, and is capable of having a positive impact in its surroundings.