Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position. Please refer to official GRESB documents for assessment related guidance.
Recent events have forced companies to place a much-needed emphasis on ESG (environmental, social, governance) if they weren’t doing so already. Climate change was once the prevailing driver of sustainability efforts, with business owners striving to minimize their carbon footprint and improve their relationship with the environment. Now, the COVID-19 pandemic has tested companies’ ability to protect the health and wellness of employees and customers. Coupled with recent protests calling attention to racial injustice, the events of this year have forced companies to reexamine the way they interact with and protect their employees and communities.
Though ESG may have only recently come into focus within the commercial real estate industry, investors have long been aware of its power to measure a company’s ability to maintain profitability, retain talent, and withstand unexpected disasters and disruptions. In the post-COVID world, ESG will continue to be a key indicator of how companies can adapt their business practices and built environments to accommodate social distancing, air quality standards, and other regulations that will continue into the foreseeable future.
Companies that have yet to modernize their approach to ESG will face greater challenges. Commercial real estate tenants in particular are facing heavy disruptions to their businesses, so gaining insight across an entire portfolio will become even more difficult without the help of technology. Conversely, firms that embrace digital are able to continue collecting data remotely and manage ESG programs from their homes. They can also spend less time on the mundane aspects of tracking performance, and invest in projects that truly move the needle in carbon reduction, employee health and wellness, and other organization-wide goals.
Doing More From a Distance
Commercial real estate companies face the unique challenge of gathering ESG data across multiple assets on a continuous basis. During normal times this can be a challenge, but tenant engagement and outdated processes like manual meter readings have been made even more complicated by the current crisis. Companies in every industry are facing massive disruptions to their businesses, causing the chore of reporting even basic environmental data like water and energy consumption to fall by the wayside in favor of more pressing concerns.
Even as businesses slowly reopen, social distancing guidelines will apply, limiting CRE firms’ ability to physically “touch” assets. Instrumentation checks and in-person meetings with property managers and tenants may become a thing of the past. And current restrictions may linger for a long time: Harvard researchers have suggested that “intermittent social distancing” may be required through 2022 to manage the spread of COVID-19. With the need to do more work remotely, firms that have automated processes like utility data collection will be in far better shape than those who rely on older, manual solutions.
Beyond simply checking the boxes, it’s crucial for companies to have continuous access to a steady stream of data so they can track their progress toward various ESG goals. With this information, companies can, for example, develop strategies to further reduce energy and water consumption and invest in building projects that mitigate climate risks like extreme temperatures and drought conditions. Without that level of transparency, firms are simply flying blind.
A Beacon of Hope
CRE companies that can reliably report a strong ESG performance are in a much better position to gain access to better, cheaper capital. Sustainable finance, which includes green bonds and sustainability-linked bonds and loans, has become a dominant force: the sustainable debt market reached $465 billion in 2019, up 78% from 2018. The CRE sector is currently well represented in sustainable finance—in fact, CBI reports that 30% of all green bond and loan proceeds were allocated to buildings in 2019.
The COVID-19 pandemic has further underscored the financial materiality of ESG, not only to investors but also to governments. For example, in late April 2020, the European Commission issued a Consultation on the Renewed Sustainable Finance Strategy, stating that the outbreak “shows the critical need to strengthen the sustainability and resilience of our societies and the ways in which our economies function. This is necessary to, above all, minimize the risk of similar health emergencies in the future, which are more likely to occur as climate and environmental impacts escalate.”
Currently, the most commonly cited reason for not opting to issue green debt is a lack of data and resources required to collect and report impact metrics. Inputting, tracking, and disclosing this information manually—and ensuring it is investment grade—can prove next to impossible without a technology solution at hand.
COVID-19 may have slowed most of the world to a grinding halt, but it has only accelerated the ESG revolution and amplified the need for a digital transformation in this area. Emerging technology solutions will not only save companies time and money on manual processes—it will empower them with new insights and help them make smarter business decisions that allow them to grow and thrive, even in uncertain times.
This article was written by Amanda Davis, Thought Leadership Content Writer at Measurabl.