Introduction

One of the breakthroughs in business management in the last few years has been environmental, social and governance (ESG) reporting, which has evolved from a voluntary initiative to a strategic component that influences decision-making.

It began with the global acceptance of climate change as early as 1960. However, the increased emphasis on environmental conservation and social equity, coupled with the pandemic, climate-related natural disasters, and social adversities, pushed ESG into the mainstream. Consequently, governments worldwide have been pushed to introduce regulations for businesses.

Simply put, ESG reporting is the disclosure of business’ environmental, social, and governance practices.

Environmental factors relate to a business’s environmental impact, including carbon footprint, resource management, reduced pollution, and migration to renewable energy sources.

For commercial real estate (CRE), climate change poses a great risk, as rising temperatures cause natural disasters such as hurricanes, earthquakes, floods, and wildfires, endangering lives, property, and operations.

Natural resource scarcity makes it essential to explore alternate energy sources and adopt means of conserving resources. Furthermore, air, water and soil pollution pose health risks. Hence, property managers are obliged to examine materials used, contamination potential, building code compliances and emergency response plans.

The monetary impact includes increased insurance compliances and costs, as well as greater repair and maintenance costs, necessitating higher capital reserves.

The social aspect of ESG focuses on how businesses manage relationships through diversity, inclusion, labor practices, human rights and employee well-being.

It focuses on delivering value for communities by addressing the welfare and safety of on-site employees, material suppliers, and construction labor.

The governance criteria are guided by a company’s management practices, which include effective board composition, ethical behavior, and transparent practices.

Why is ESG Reporting Important?

Additionally, energy-efficient buildings command greater respect as they demonstrate the stakeholders’ commitment to ESG, thereby making the property attractive to investors and tenants alike.

Green buildings experience higher occupancies, higher rents and enhanced probability of lease renewal leading to property appreciation.

Lastly, accurate and transparent reporting helps to demonstrate ESG commitment and highlights achievements and areas of impact.

How to Implement an ESG Reporting Strategy

Implementing an effective ESG reporting strategy requires a holistic approach toward data collection, benchmarking, implementation, and performance tracking. Data is the foundation of any ESG strategy, as it aids in identifying areas of improvement.

To begin with, CRE businesses can identify climate-related risks and greenhouse gas emission risks to devise ESG strategies, and benchmark against industry standards and competitors.

The ensuing task is to weave the ESG strategy among all groups for better understanding and implementation. This needs to be accompanied by consistent progress tracking through performance metrics.

Conclusion

ESG reporting presents a substantial chance for property managers to showcase their dedication to sustainability, enhance operational effectiveness, and adhere to regulatory mandates.

It aids in the identification of risk, which, when managed proactively, safeguards against financial and reputational losses. Businesses with robust ESG strategies not only amplify their culture and asset value, but also fetch greater financing opportunities.