environmental issues are becoming evidently more important to business,
regardless of industry and location.
a worldwide consensus is emerging that we can no longer afford to wait, Greta
Thunberg, a 16-year-old Swedish teenager, reminded us that “if it continues the
way it is now, we are never going to achieve anything” in her speech at COP24
across the globe remind us of the urgency to consider both the environment and
inequality together in policy-making. It is abundantly clear that tackling the
climate challenge demands much more than a green transition, but a sustainable
and inclusive transformation which calls for a rethinking of economic,
environmental and social policies and the way they relate to each other.
and climate change agendas are beginning to be integrated into the core
business of some real estate companies. Many of them commit to more efficient
buildings and combatting climate change in the hope of managing risks and
securing long term economic growth.
World Economic Forum suggests that buildings account for around 40% of the
world’s consumption of primary energy and produce around a third of all man-made
CO2 emissions. At the same time, property is one of the asset classes most
vulnerable to the impact of climate change. There is an immediate need for real
estate companies and funds to come forward – to mitigate climate change and to adapt to its
effects, such as strengthened regulations on carbon emissions and subsidies on
If businesses see environmental challenges as future value drivers, similarly economic and social challenges should also be seen as enormous opportunities for the real estate market
Integrating environmental challenges with social needs
Organizations such as the Intergovernmental Panel on Climate Change (IPCC) have set out the serious physical risks to assets posed by temperature increases. The Task Force on Climate-related Financial Disclosures (TCFD) has established crucial benchmarks and standards for environmental risk disclosures and management. The risks identified extend beyond physical risks to include regulatory, due diligence, legal and technological challenges. Institutional and retail investors, including pension funds and insurance companies, are looking for a consistent global framework to better identify, evaluate and manage the impacts of economic and social challenges towards their real asset investments worldwide in 2019.
The 17 United Nations 2030 Sustainability Development Goals (SDGs) reflect the most pressing needs we face today. They also provide investors with a set of helpful pointers on measuring emerging opportunities and risks when developing or reviewing their asset portfolio. Leading research-based indexes and analytics have incorporated SDGs into their assessment frameworks, allowing investors to identify companies with exposures to social and environmental challenges identified in the SDGs. For example, the overall like-for-like energy consumption and the long-term greenhouse gas emission reduction target reported to GRESB enable investors to measure companies’ contribution to SDG 7 on affordable and clean energy and SDG 13 calling for climate action. Their resilience module measures the capacity of companies to survive and thrive in the face of social and environmental shocks and stressors. Along with their health & well-being module, these indicators respond to SDG 11 on sustainable cities and communities and SDG 3 on good health and well-being.
Real estate companies have to put more effort in terms of recognising impact and promoting progress in social and economic development of local communities. According to a sector survey conducted by European Real Estate Investors, only 27% of companies under review seem to be aware of the challenges and associated responsibilities raised by the SDGs. For example, promotion of property accessibility and the more general promotion of economic development.
Real estate companies and their investors would benefit from adopting a more people-centric approach and considering a broader set of indictors in order to identify and manage the economic and social challenges affecting their assets. The table below provides an overview of a selected list of SDGs real estate companies could integrate into their strategies.
Investing and Stakeholder Engagement
Impact investment is capturing growing attention amongst mainstream investors.
Impact investment, as defined by the Global Impact Investors Network, refers to investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. These investors look at financial wellbeing in a social and environmental context and are becoming more proactive in their intention for driving positive impact as opposed to merely avoiding negative impacts. Regardless of their intentions, it should come as no surprise to any business that it is time to deepen the manner in which they monitor and evaluate their influence on society in broader terms.
engagement is an essential process to help businesses achieve an in-depth
understanding of the social and environmental challenges they face in a complex
setting. However, real estate companies today still largely consider stakeholder
engagement as a process for improving services without examining risks and
opportunities brought by changes in society. According to the 2018 GRESB Real Estate Results, real
estate companies engage with their stakeholders mainly through satisfaction surveys and grievance mechanisms.
As impact investors become more influential, we can expect growing demands for disclosure requirements on stakeholder engagement and impact assessment. Real estate companies that identify ways to better understand the social issues facing the societies in which they operate, and demonstrate the risks and opportunities that these present, are well set to attract the socially-conscious investors of the future.