In real estate development, environmental, social and governance (ESG) factors have taken center stage. These factors tackle issues such as social injustice, climate change, and ethical business practices.
Real estate professionals are now incorporating ESG considerations at every stage of a property’s lifecycle, from due diligence to asset management, in recognition of the wide-ranging impact. By analyzing current trends, innovations & regulatory requirements, this article identifies important ESG factors.
Environmental:
By addressing embodied carbon emissions during construction, real estate developers are putting more and more emphasis on combating climate change.
The drive to lower carbon footprints highlights the importance of sustainable practices in order to protect asset value. The increasing significance of sustainability in real estate valuation is highlighted by the higher rents associated with green buildings, which are frequently newer and more ecologically friendly.
Because it sequesters a significant amount of carbon during construction, timber is a more environmentally friendly option for green building materials.
Tightening regulations highlights the need for green reporting standards that lower energy use and carbon emissions. Australia’s NABERS building rating system is one example of how this is being done.
Green buildings are becoming premium assets:
Green buildings are highly valued. As a result, rental prices for buildings with superior environmental performance are typically higher than those for non-green properties.
It may take some time to determine the exact sustainability premium for green buildings but the potential for a “brown discount” or reduced value, for assets with superior environmental performance illustrates the importance of sustainability expenditures.
Green building materials:
About 40% of annual carbon emissions worldwide are attributed to the building and construction sectors with the production of steel and concrete making up the remaining 5%.
Timber’s ability to sequester carbon makes it a more environmentally friendly option. In contrast to the 1,000–2,000 metric tons of carbon dioxide emissions from an average steel and concrete building, timber structures can store 2,000–4,000 metric tons of carbon dioxide during construction.
Social:
Communities are significantly impacted by real estate which affects resident wellbeing, property values and state of the local economy.
In Australia, the housing market addresses the urgent need for affordable housing and offers significant opportunities for investing.
The importance of health & wellness in the design of buildings, emphasizing elements that improve indoor air quality and general wellbeing such as adequate ventilation, natural light and low toxicity materials.
Developers are realizing the significance of their projects for society and going above & beyond with their financial gains to produce enduring social advantages.
Governance:
In the real estate industry, governance encompasses matters such as executive remuneration, diversity in management, preventing corruption and upholding moral principles.
As it advances equity, diversity and inclusion, corporate social responsibility or CSR is becoming a crucial component of good governance. Important elements of governance practices include openness, judgment, choosing vendors, and tenant involvement.
To track and assess asset level ESG performance, benchmarking tools such as GRESB are used. These tools offer insights into stakeholder engagement, leadership, risk management and carbon emissions. Technology is essential to reaching ESG objectives as it makes data collection, reporting, and energy performance monitoring easier.
Additionally,
Resilience and Effective Risk Management: Managing disruptive events like pandemics and extreme weather is a key component of resilience in real estate development. A property’s resilience to climate related risks is increased with effective risk management that lowers vulnerability to calamities like floods & wildfires.
Impact Investing in Affordable Housing: The Australian affordable housing market not only fills housing shortages but also offers profitable opportunities for impact investing which provides both financial returns and social benefits.
Health and Wellness in Building Design: The importance of elements like adequate ventilation, access to natural light and fitness centres for resident’s well-being is recognized by developers, who are progressively incorporating health & wellness considerations into their building design.
Technology for ESG Goals: Prop Tech based platforms that improve tenant experiences and data management platforms for ESG data are just two examples of how technology is essential to reaching ESG goals. Enablement technologies support sustainability goals by tracking and optimizing energy performance.
To summarize:
ESG considerations are crucial to real estate development, impacting decisions & actions at every turn of a property’s life. Developers are realizing that a comprehensive approach is necessary, from addressing climate change through sustainable construction to impacting communities with affordable housing.
As ESG becomes more widely recognized, it does not only lower risk and preserves asset value, but it also has positive social effects and synchronizes real estate development with global sustainability objectives.
“In order to gather and report on ESG data and make long lasting impact, benchmarking, technology, and reporting are indispensable to gather, analyze, and present ESG data, and make sustainable advancements.”
