ESG. A small acronym with massive implications for Canada's real estate players. I've previously discussed why it's important for organizations to get ahead of evolving environmental, social, and governance reporting standards. In this post, I want to look at what real estate players stand to gain from rising to this challenge.
The first and simplest answer is that it's the right thing to do. Real estate assets account for a significant portion of the world's greenhouse gas emissions. They are prime grounds for carbon-reduction initiatives and clean energy strategies. This responsibility isn't lost on the sector: many organizations have already started to help steer the regulatory conversation, and I applaud them for it. But there's more work to be done—and more benefits to claim.
Rising to the challenge
Moving toward a cleaner, more sustainable planet should be motivation enough to put ESG at the top of one's agenda. Even so, there are other incentives for real estate organizations in particular to consider, including:
- New ways of doing business. Investors and lenders are aligning with organizations that make genuine and verifiable efforts to see their operations through an ESG lens. They recognize that sustainable assets mean sustainable investments, and they want assurances that organizations are addressing the impacts of climate change on their portfolios.
- Employer of choice. Real estate professionals are showing a greater inclination for employers that are genuinely committed to lowering their environmental footprints and contributing to a greener built environment. And in a time when finding and retaining talent is a constant struggle, being recognized as an organization that walks the sustainability talk will only increase talent attraction and retention.
- Aligning with tenants. But investors and employees aren't the only ones warming up to organizations that embrace the ESG challenge. Tenants and their clients today are more inclined to do business with organizations that reflect these values. And as climate activism and awareness continues to heat up worldwide, expect these attitudes to be the norm.
- Managing insurance premiums. Between record-breaking floods, fires and snowstorms, Canada is facing more extreme weather events than ever. It's little surprise that insurance companies are increasingly focused on how organizations are making their assets resilient against the attendant risks. From what I've seen, insurance premiums have already become a significant cost factor for some real estate companies, as much as doubling for some in the last year alone. That isn't sustainable—rising premiums can't be managed indefinitely and will eventually lead to shortfalls for everyone.
- Saving costs, adding value. It's easy to imagine how implementing energy retrofits and eco-friendly upgrades can have a direct and positive impact on resource and utility expenses. And more cash flow hitting the bottom line means greater asset value.
- Weathering the storm. It might not (yet) be obvious, but it's true: taking ESG into account on real estate operations unlocks investments, practices and transformations that extend the life of an organization and its assets. That's a win-win for everyone.
The bottom line is this: today, ESG practices and frameworks are more than promotional bullet points; they're central to becoming an employer or partner of choice.
Toward the tipping point
So, what does it mean to rise ahead of the sustainability curve? For one, it means recognizing the value that comes with building ESG considerations into your portfolio and future business opportunities. It's also about enhancing ESG reporting to assure stakeholders that your organization is setting and meeting realistic sustainability targets.
Of course, rising to the ESG challenge means balancing sustainability costs against the tangible and intangible costs and impacts on valuations. It's no small consideration but one that will ensure all stakeholders buy into the journey.
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