What is ESG in property management?

The consideration of ESG (Environmental, Social and Governance) factors is fast becoming critical to the success of businesses across all sectors and the property management industry is no exception.

More than 80% of the buildings that exist today will exist in 2050 so developers, owners, managers, occupiers and lenders all play a role in ensuring that buildings are sustainably and environmentally responsible.

Over the next five years we are likely to see continued growth in environmental requirements for the real estate industry. Developers and managers will need to adapt to changing expectations around sustainability, social responsibility and governance in order to stay competitive and meet the needs of tenants, investors and society as a whole.

In this blog, you will learn what ESG in property management is, why it’s important and how it’s being implemented in the industry.

What is ESG?

Short for Environmental, Social and Governance, ESG refers to a business’ impact on the environment and society (both local and national), plus the transparency and robustness of its governance. It’s a measurement for how well environmental, social and governance practices are integrated into operations and guide you towards providing a metric for benchmarking sustainability. Below we explore some of the key ESG factors in relation to property management.

The ‘Environmental’ in ESG

• Net zero buildings: Develop real estate that has a neutral or negative carbon footprint to assist in meeting net zero goals.
• LEED ratings: Construct and improve buildings to meet internationally recognised certifications such as LEED ratings.
• Green leases: In commercial lettings, green leases impose an obligation on the landlord and tenant to manage and reduce a building’s environmental impact.
• Energy usage: Monitor and reduce energy usage through infrastructural improvements and data driven actions.
• Water and air quality: Adopt practices that preserve or improve the quality of waterways and local atmosphere such as reducing pollution or GHG emissions
• Material usage: In property development or refurbishment, use sustainably sourced and long-lasting construction materials.
• Waste: Effectively manage waste by ensuring recycling or composting, grey water systems are in place, and ensuring dangerous waste such as raw sewage or industrial waste is disposed of safely and compliantly.
• Smart facilities: Carry out detailed data collection and analysis, including using solutions such as sustainability management software.

The ‘Social’ in ESG

• Social and affordable housing availability: Ensure people on lower incomes can afford housing by providing social and affordable housing options.
• Equal opportunities: Ensure stringent adherence to the Equity Laws around letting for both residential and commercial properties.
• Support for local communities: Invest in value-adding and life improving services for local communities.
• Social value metrics: Gather data on how your business impacts people’s wellbeing and quality of life
• Diversity, equity and inclusion for stakeholders: Ensure your business reflects the communities you aim to serve and the groups you want to benefit.
• Building safety: Ensure compliance with building safety codes and develop robust management practices to mitigate safety risks.

The ‘Governance’ in ESG

• Ethical investments: Put your money behind ecologically or socially conscious initiatives and ensure partners and sponsors are associated with ethical causes or best practice.
• Investment viability: Fully investigate investments and put in place thorough due diligence procedures to ensure investments are financially sound.
• Business continuity: Put in place robust plans for ensuring vital services can be provided in the event of an emergency or major disruption.
• Data subject security: Ensure resilient data security practices are in place to minimise the risk of data theft or a security breach.

Why is ESG important in property management?

As real estate organisations are coming under increasing pressure to provide greater transparency into their sustainability practices, it is more crucial than ever that real estate and property managers set and implement clear and actionable ESG and sustainability goals. Below we explore some of the key reasons why ESG is important in property management.

Improve investments

As part of meeting ESG goals, property investors should be focussing on assessing the whole life cycle of an investment property and can therefore determine the quality of the investment for the long term. This means that extensive due diligence can take place on investments and developments to ensure that properties are meeting high quality standards, thus improving overall performance and enabling healthy returns for stakeholders.

Meet consumer/investor expectations

Increasingly, tenants are looking for energy efficient, ecologically conscious rentals, whether commercial, office or residential. Through actioning ESG criteria, such as improving energy efficiency, air quality or ecological credentials, you can ensure properties are more attractive to tenants and therefore increase demand and potential rental income.

Improve asset value

Properties that are sustainably built and optimised towards ecological responsibility are more likely to fetch a higher price when put on the market. By using ESG strategies and actioning criteria, you are investing in assets and driving up price and desirability.

Meet regulatory or industry requirements

As governments around the world are setting and working towards net zero targets, increasingly stringent requirements for property managers are being laid down. By putting ESG targets into action, you can ensure your business and your portfolio maintain compliance in the face of tightening regulations.

Key areas where ESG requirements will have an impact on property management

Committing to ESG targets and maintaining compliance with ESG related regulations means that your business will need to adapt to different ways of working and invest in different areas of your portfolio. This includes:

Design and construction of new buildings

Increasingly, there will be a focus on incorporating sustainable materials, energy-efficient systems and other features that reduce the environmental impact of buildings. This will be driven in part by regulations and building codes that mandate certain standards, but also by market demand from tenants and investors who want to be associated with buildings that prioritise sustainability.

Improving the environmental performance of existing buildings

This will involve retrofitting buildings with more efficient systems, e.g. LED lighting and smart building management systems, as well as making structural changes that improve energy efficiency. There will also be increased attention paid to reducing the carbon footprint of buildings through the use of renewable energy sources.

Governance considerations

This will involve ensuring that real estate companies are operating ethically and transparently, with a focus on fair and equal treatment of all stakeholders. There will be increasing pressure on companies to disclose their ESG performance and to demonstrate that they are actively working to improve their practices over time.

The top 3 benefits of ESG for property owners and managers

Whilst for many property management organisations the upfront investment of ESG adoption may seem challenging, it is crucial to look ahead at the mid to long-term benefits, for which they are significant.

Enhanced revenue and property value

Buildings that are sustainable and energy efficient enhance occupant/tenant satisfaction, improve rental rates, lower operating expenses and thus increase property value.

More and more occupiers are now willing to pay increased rental rates justified by the offset in savings in operating expenses as a result of a more sustainable and energy efficient building.

In addition, as organisations include ESG as a part of their corporate strategy, leasing “green space” will be a prerequisite to align with their corporate values, hence driving the demand for such buildings and reducing the likelihood of vacancy.

Improved business reputation

By committing to robust ESG targets, you can also boost your public image and reputation and attract higher quality tenants, investors, landlords and employees.

By actively working towards upholding a sustainable, socially conscious and well-run company, your reputation is likely to pay dividends in the form of improved trust in your brand and therefore a competitive advantage over organisations who are not prioritising ESG.

Risk mitigation

Risks that are offset by ESG commitments are numerous. Vacancy rates are decreased, as sustainable and energy efficient properties are attractive in the market, and the enhanced performance this brings facilitates improved client acquisition. Efficient buildings run by well-governed businesses are also at a reduced risk of high operational costs, litigation and health and safety concerns.

How MRI Software can help you in meeting your ESG goals and objectives

At MRI Software, we’re passionate about helping you leverage technology to meet corporate governance requirements and drive greater operational efficiencies. Contact us today to find out more about how our sustainability management solutions can accelerate your vision for sustainability.