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Real Estate and ESG: Insights from IMN Forum

Aug 14, 2023

ESG strategies not only provide real estate companies with a competitive advantage, but they have also demonstrated proven improvements to ROI. At their second annual ESG & Decarbonization of Real Estate Forum, IMN brought together leaders from real estate and investment markets to discuss how ESG is impacting the real estate industry, including how:

  • Collecting quality data is important for creating actionable ESG goals for a company.
  • ESG reporting helps real estate companies show how they are including ESG factors in their decisions, as well as set goals, track progress, and highlight achievements.
  • Climate change is having a serious impact on the insurance industry. This then affects real estate by increasing insurance rates and making it harder to insure properties in risky areas.
  • Real estate companies are realizing the importance of considering embodied emissions in their projects. They are focusing on environmentally conscious design before construction to reduce their carbon footprint and meet long-term environmental goals.

Quality Data Collection for Real Estate

It’s no surprise to hear “data is key,” but many real estate properties lack efficient data collection design.

It’s important to collect and scrub for effective use as this data is crucial to helping the property set goals, benchmark, and report on ESG initiatives. Automating the data collection process can also decrease human error and allow for accurate real-time meter readings.

Reports are only as good as the data put in so processes should be implemented with quality control and automation standards to ensure data is valid. Professionals often joke, “Garbage in [bad data], means garbage out [incorrect analytics and reports].”

It’s not just enough to collect and measure data, you need to know how to read, analyze, and interpret it to create actionable goals and roadmaps. Through use of PropTech, building owners and operators can improve operation efficiency, decrease cost, which ultimately increases ROI, and improve investor relationships.

ESG Reporting & Benchmarking

An effective ESG report is a real estate organization’s roadmap to actionable implementation of their ESG initiatives. Goals and timelines need to be realistic and actionable, and successes needs to be documented and supported. They should include science-based targets (such as location strategy) and highlight actual performance, reliance, and impact.

Authenticity and transparency are crucial to a meaningful ESG report. Make sure to explain the “why” for users, and ensure it’s easy to read, friendly, and easily accessible with case studies and charts to support data and progress. Verification and accountability are also important as the ESG report often translates to money and financial statement impact, which ultimately comes down to risk and return.

More companies today are electing to assess and/or report on their ESG efforts. GRESB documented a significant increase in participation, which allows for greater uniformity, reliability of data, and ability to benchmark against peers. Creating your first GRESB report may seem daunting, but it has several benefits. It allows you to compare your performance against your peers in the real estate industry and serves as a starting point for improving your ESG efforts while tracking progress.

Climate Change’s Impact on Insurance

As weather events become more common and severe, insurance companies must raise prices or leave risky markets. For instance, major hurricanes and wildfires have driven insurance markets into crisis in Florida, Louisiana, and California. This affects current markets and future sales as a lender won’t close a deal if they know the buyer can’t get insurance.

Additionally, insurance models have been calculated by looking backwards at historical weather. With weather patterns changing more frequently, they’ll need to develop ways to look forward for climate trends and projections.

Embodied Emissions

To date, the “E” (Environment) of ESG has primarily focused on decreasing carbon emissions and reducing energy usage and waste from preexisting standing buildings by implementing environmental initiatives such as upgrades to HVAC systems, installing solar panels and/or wind turbines, or installing LED lighting.

Once the “low hanging fruit” have been addressed, the “E” will begin to focus more on decreasing embodied emissions throughout properties and monitoring embodied carbon during design and construction.

Making eco-friendly decisions during the design phase can reduce emissions and potentially save money in the long run. This includes considering the use of reused or salvaged materials, building material alternatives (wood or hemp), or using additives or supplements to concrete.

In the future, the carbon emissions from transporting and shipping of materials will also begin to be factored into the total embodied emissions (scope 3), making the property’s carbon footprint even larger.  

ESG in Real Estate is Here to Stay

There is no longer a debate about whether ESG is a worthwhile investment, and ESG has become inserted into policymaking and investment criteria worldwide. Incorporating ESG practices has proven to increase value, improve investor confidence, and decrease long-term risk. Real estate owners and operators can be environmentally conscious and socially responsible by adopting sustainable practices and preparing for future regulations. This will also help reduce risks related to climate change.

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Amy Menist

Amy Menist is an Audit Senior in the firms Real Estate Services Group and the Construction Services Group with over 10 years of accounting experience serving both public and private companies.

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