Written by: Laura Turner
It’s 2021. Sustainability has found a place in almost every aspect of our lives. We’re used to seeing various “green” labels on our groceries, cleaning products, even our clothes. Many of us even have certain brands or companies we avoid because they are known for poor labor practices and environmental stewardship. These trends reflect the fact that our economic choices are informed in part by their impacts on the environment, individuals, and society as a whole.
In the real estate industry, this is particularly important. The built environment has tremendous impacts on the planet. The buildings we occupy also affect our health and our communities. Tenants want to understand how the buildings they live and work in promote their health and well-being and allow them to live their lives more sustainably. Similarly, investors recognize that the long-term viability of their ventures depends largely on their environmental and social impacts.
This demand represents both an opportunity and a call to action. Companies are increasingly thinking in terms of the triple bottom line, an economic concept that frames a business’s success in terms of the “Three Ps:” Profit, People, and the Planet. As opposed to a single bottom line approach, in which profit is a business’s sole consideration, the triple bottom line allows companies to consider the communities and the environmental systems they impact in their decision-making. Given that climate change will have a tremendous impact on most regions and industries, this approach increases viability and flexibility for businesses long term.
So how do companies with a genuine commitment to sustainability and equity distinguish themselves? How do they show that they are walking the walk?
The answer is simple: Environmental, Social, and Governance (ESG) Reporting. ESG broadly refers to three main areas in which companies can demonstrate their impacts:
E – Environmental refers to a company’s environmental impacts; everything from waste management to building design to energy usage and greenhouse gas emissions.
S - Social highlights their impact on stakeholders, from employees and industry partners to the communities their operations reach. This can include things like employee benefits, equitable hiring practices, and community development.
G – Governance covers corporate activities, both internal (such as diversity of leadership, fair compensation) and external (like responsible investments, corporate giving, and responsible sourcing)
There are numerous ESG reporting frameworks that address different market segments and applications, each with its own process and set of standards. For CRE firms, ESG takes a few steps beyond facility-driven certifications like LEED and WELL. ESG reporting often leverages these certifications because they are useful and reliable means of demonstrating buildings’ environmental and health impacts, but individual holdings are just one piece of the puzzle. That is, the purpose of ESG reporting is to gain a comprehensive understanding of a company’s impacts – from hiring practices and employee benefits, to investments and risk management strategies, to carbon and waste management in company offices and tenant buildings.
In short, ESG offers companies and investors an in-depth understanding of a business’s long-term viability with respect to sustainability and equity.
The benefit of using an ESG framework for sustainability claims is that these systems ensure that businesses are reporting on the right topics and are backing up these claims with the right data. These frameworks are developed by independent, unbiased third parties. They put forward rigorously defined standards, against which companies must demonstrate their performance using actual data. In doing so, ESG frameworks help guide industry standards for sustainability and provide a landscape against which individual companies’ claims can be measured and understood.
There are dozens, if not more, of options available to companies interested in ESG. Some are industry-specific, others broad; some are more rigorous than others, and some are more reputable.
Here is a brief survey of a few common ESG options:
The Global Reporting Initiative (GRI) is a framework that allows companies to develop meaningful sustainability reports. Notably, GRI does not offer an overall scoring methodology or require companies to report on certain measures. Rather, its focus is on transparency. GRI puts equal weight on E, S, and G, offering a guide for holistic and rigorous reporting that companies can use to report on the topics they select.
The Task Force on Climate-Related Financial Disclosures (TCFD) provides a framework to disclose climate-related financial information and identify opportunities for improvement. Its purpose is to offer the companies themselves, as well as investors, lenders, and other market actors a picture of a company’s financial stability in the face of climate risks, allowing them to make financial decisions that are viable in the long term.
Similarly, the Sustainability Accounting Standards Board (SASB) offers industry-specific accounting standards that allow businesses to understand and communicate the sustainability impacts that affect their business. The standards can be integrated into financial filings and sustainability reports and can be used alongside other frameworks, namely, GRI.
The Global Real Estate Sustainability Benchmark (GRESB) is designed for the real estate industry. Participating companies provided data and responses that demonstrate both asset- and entity-level performance according to a range of E, S, and G standards. GRESB then compiles and scores each participant, offering important insights not just into individual companies’ performance, but into various segments of the real estate market overall.
Other questions to consider:
Who is the primary audience for your sustainability reporting? Is it investors? Consumers? Employees and industry affiliates?
What are peers and leaders in your industry doing with respect to ESG? To create a competitive sustainability strategy, you’ll want to make sure your efforts can be easily understood by professionals in your industry and that they are readily comparable to your competitors’ efforts.
Where do your company’s sustainability efforts stand and what goals do you have in place? If you are using ESG to get a better handle on what your company’s impacts are and to develop sustainability goals, you might consider a different route than you would if sustainability is already industry standard and you’re trying to showcase your industry leadership.
The world of ESG is a vast one. Interested in learning more? Contact us at info@waypoint-energy.com to start mapping out your ESG goals.