ESG and Commercial Real Estate

Competition in the commercial real estate industry is rife. Overall 2020 was a very rough year for both tenants and landlords. Unfortunately many businesses closed, inherently meaning less rent paid. Commercial real estate in cities initially took a huge hit, but the industry is currently on the rebound. As we attempt to push past COVID-19 there are things commercial real estate owners can do to increase the values of their properties.

A recurrent theme has surfaced in recent years: ESG. It stands for Environmental, Social, and Corporate Governance and has become a critical business consideration for investors, but also something property owners should take note of.

One would have imagined that the global pandemic would place a screeching halt to ‘responsible investing.’ However, compelling reports have revealed that sustainable investment is on the rise. In fact, since the start of the pandemic, there has been a steady increase in ESG investment. Investment funds doubled to $54.6 billion in the second quarter of 2020 in comparison with the first quarter.

According to Deloitte, CEOs worldwide have named ‘societal impact’ a critical driver for increased annual performance. More so, the Securities and Exchange Commission (SEC) has begun clamping down on businesses regarding ESG workplace concerns. With the commission already on the move to propose new rules on ESG disclosures, it is not to be taken lightly.

Our previous article covered why ESG gives your establishment a competitive advantage in the corporate and industrial world. But does it mean for commercial real estate (CRE)?

Environmental, Social, and Corporate Governance

As digital transformation permeates every sector, everyone is becoming hyper-aware of the environmental and societal concerns we constantly face. We live in a socially conscious world.

As a result, we see a noticeable rise in occupant demands, new regulations, and market requirements in commercial real estate. Thus, it is vital to plug in and take advantage of ESG, as it connects these factors efficiently.

ESG – especially the environmental aspect – covers carbon footprint, waste management, climate change, and even water conservation.

The social aspect deals with occupant wellness, employee benefits, corporate philanthropy, diversity, equity, and inclusion (DEI).

Lastly, the governance aspect mainly deals with corporate compliance, ethics, and even board diversity.

New Findings

According to Harvard Business Review, the more a real estate company embarks on these measures, the more they can expect the values of their properties to increase.

Data from last year already indicates that companies with a strong foundation in ESG outmatched others in the stock markets. In a recent study by Urban Land Institute in collaboration with PwC, 55% of Millennials prioritize ESG as a key factor in their investment decisions regarding commercial real estate. Millennials are the largest generation, so including their opinions within your business strategies can be beneficial.

Institutions such as BlackRock, Blackstone, and Goldman Sachs, have announced that ESG will be a significant factor in investment assessments. Notably, the New York State Pension Fund – one of the largest investors in the world – is moving away from fossil fuels investment in the next five years.

Everyone is looking towards green investment in CRE. The Local Law 97 in New York already mandates buildings with 25,000 square feet or greater to reduce their carbon footprint by 40% by 2030. When property owners reduce their carbon footprint it is not only good for the environment, but also for the property’s valuation. Armed with ESG, CRE in New York and the world over can achieve this and more.

What Should You Do?

Implementing ESG in your real estate company is a boost for property values and having the best team for business longevity. However, there are several steps you must take to have a competitive advantage. They include:

Get the Edenark Group ISO 14001 Certification

Your real estate business needs to be ESG compliant. The best way for your firm to achieve that is to get the Edenark Group ISO 14001 Certification. It is a sustainability program organized by Edenark Group to help real estate businesses comply with regulations, thrive above a sea of competition, and amass significant revenue.

This program is backed by World Bank, SEC, FINRA, ISO, and the United Nations. Other benefits of the certification include:

• Keep up a positive brand image
• Remain carbon footprint compliant
• Be in a framework of over 300k organizations
• Improved financial performance.

Level up your real estate firm with this certification.

Review Your Portfolios Environmental Impact

First thing your real estate firm should do is review its utility bills and usage. Using the local power provider could mean you are paying their price not ‘market price’. Next you can evaluate how your properties are built. Have you added a green roof or solar panels? Some of these choices can have high front loaded expenses, but the results can be good for both the present and future of your company.

Maintain Great Employee Relationship Management

Another way your CRE can be ESG compliant is to build and maintain a great relationship with your real estate agents and other employees. According to a survey, 90% of HR professionals agree that making meaningful connections with your staff is crucial to business success. A happy workforce wants to work harder for their employers and help generate revenue.

Conclusion

There are numerous ways in which your real estate firm can benefit from ESG compliance. While some of these solutions may be more time intensive, others can be more simply put in place. Currently our clients are implementing these changes and seeing positive results.

Reach out to us to discuss how we can help your business reduce expenses, maximize profits and become ESG compliant.