Introduction
ESG is a framework that helps recognize the risks being handled by any organization based on environmental, social and governance criteria. While sustainability, ethics, and corporate governance are generally regarded as non-financial performance indicators, an ESG program’s role is to ensure accountability and the implementation of systems and processes to manage a company’s impact, such as its carbon footprint and how it interacts with employees, suppliers, and stakeholders. ESG activities also help to advance broader business sustainability efforts, which attempt to position firms for long-term success through responsible corporate management and business strategies.
ESG Elements
Environmental
This vertical under the ESG deals with environmental issues like climate change, greenhouse gases, renewable and non-renewable energy and waste management.
Social
This vertical deals with human rights, working conditions in organizations, human resources, employee benefits and work-life balance.
Governance
This vertical deals with board composition, company policies, corruption matters, compensation policies and other administrative policies.
ESG in Real Estate
A well-developed ESG strategy can prove the ultimate benefit to the organization. That is the reason why real estate companies are highly focused on ESG trends. The key to a good ESG strategy is understanding stakeholder needs.
Current Trends and Statistics of ESG in Real Estate
ESG has created new standards which have changed investing trends post-COVID-19. Investors are not only concerned with the financial profits but are also looking up to environmental, social and governance profits. Investors, regulators, and consumers are increasingly demanding real estate companies practice sustainability through ethical practice and transparent behaviour. This awareness has majorly been influenced by climate change, social equity and corporate accountability.
Environmental Aspects of ESG in Real Estate
Green Building Certifications (LEED, GRIHA, BREEAM, etc.)
LEED
Leadership in Energy and Environmental Design is a green building certification. There are 197,000 LEED projects worldwide in 186 countries and territories.
GRIHA
Green Rating for Integrated Habitat Assessment
BREEAM
Building Research Establishment Environmental Assessment Method is used to recor the sustainability performance of buildings. This framework helps projects meet their sustainability goals and achieve optimal performance over time.
Renewable Energy Investments
With increasing population and energy usage, companies are shifting towards renewable resources to avoid future complications. According to BloombergNEF Report, glocal clean energy investments increased 17% and hit 1.8 trillion dollars in 2023. Based on this report, China is leading by 676 billion dollars, contributing 38% to global.
Water Conservation and Waste Management
Waste management market size was 1124.16 billion in 2023 globally according to Precedence Statistics 2023. Asia Pacific region constituted 59.14% market share. The E-waste segment is continuously growing at CAGR 7.3% from 2024- 2033.
Climate Change Mitigation
With climate change as a major challenge, real estate companies are investing a major share towards climate change mitigation strategies. Energy efficient design, using renewable resources and technologies can help reduce the carbon footprint of the buildings. Eco-friendly materials and climate resilient design can help withstand climate related risks.
Environmental Compliance and Reporting
Real estate companies must meet local, national and international standards as required. Waste management protocols, water usage, energy efficiency standards should be well followed by these companies.
Environmental Impact Assessments
EIA (Environmental Impact Assessment) report a tool that helps decision-makers evaluate the potential environmental consequences of a project or development proposal. It ensures that the companies are contributing enough to the environmental issues.
Social Aspects of ESG in Real Estate
Community Engagement and Development
People are the most important part of any real estate organization. They are the one who keep the company running. Therefore it important that regular community engagement and development programs are organized in the company for the welfare of the people.
Inclusive Design and Accessibility
The organization’s building must always be easily accessible to all its users, regardless of their age,ability or socio-economic background. Real estate developers must prioritize universal design principles.
Public Spaces and Community Benefits
Public spaces provide a common space for social interaction, cultural activities and recreation. This developes a stronger sense of community among the people.
Stakeholder Engagement
Stakeholder engagement programs must be held regularly to help the people involved in the project, understand their contribution. Real estate developers can gain support and confidence among the stakeholders if they engage them in early project stages until the project completion.
Health and Well-being
Indoor air quality is crucial for the residents health and wellbeing. Including green spaces gives opportunity to create public spaces for social interaction that keeps the mental as well as physical well being of the residents and employees. These spaces will also contribute to environmental sustainability through biodiversity, reduced urban heat island effect and improved air quality.
Social Equity and Diversity
Affordable housing initiatives enable people fo all socio-economic backgrounds to achieve safe and decent housing options. A diverse workforce in the companies creates different perspectives, ideas and experiences which help the company to grow better. Ethical labour practices icnlude, fair compensation, safety at construction sites, and working rights.
Governance Aspects of ESG in Real Estate
Corporate Governance
Governance is the backbone of the ESG, while environmental and social aspects are always on the forefront, governance is the element that binds them together. It is the one that makes sure everything is in check. It is important for long-term results.
Board Structure and Responsibilities
A well-structured board with diverse members and expertise helps to company to run better. It provides hierarchy and transparency at all levels. Regular training for the board members about the ESG issues and targets must be provided to stay updated with current ESG trends.
Ethical Business Practices
Conducting business with integrity, avoiding conflict of interest, and ensuring fair treatment to all stakeholders are important practices.
Transparency and Accountability
Transparency and accountability are essential components of effective governance. Real estate firms must be transparent about their ESG performance, plans and objectives.
Risk Management
Identifying and Mitigating ESG Risks
Risk management is a key component of ESG governance aspect which is crucial for detecting and reducing ESG risks. Real estate companies face regulatory compliance, tenant relations and climate change risks. Effective risk management involves identifying potential risks, assessing their impact and planning strategies to deal with it.
Compliance and Legal Considerations
Compliance with rules and regulations is an essential governance need in the real estate industry. This involves following environmental restrictions, labor laws, and corporate governance guidelines.
ESG Performance Monitoring
Compliance with rules and regulations is an essential governance need in the real estate industry. This involves following environmental restrictions, labor laws, and corporate governance guidelines.
Stakeholder Relations
Investor Expectations and ESG
Investors anticipate real estate companies to give preference to ESG factors in their operations. Companies that fulfil these expectations can attract and maintain investment, but those who fail may suffer divestment and decreased confidence among investors. Effective communication with investors based on ESG objectives, strategies and performance is critical to establishing and sustaining investor trust.
Tenant and Customer Relations
Real estate companies must consider tenants and customer needs while implementing ESG initiatives. This includes sustainable building features, tenant well being and transparent communication. Positive tenant and customer relations contribute to long term occupancy and satisfaction which is essential for financial stability.
Collaboration with Government and NGOs
Collaboration with governmental and non-governmental agencies is critical for achieving ESG objectives in real estate firms. Governments frequently give incentives and create legislation for ESG activities while NGOs can contribute expertise and resources. Real estate organisations that partner up with these governmental and non-governmental organizations can gain regulatory backing, financial profits, and other beneficial allowances to boost their ESG efforts.
Case Studies
King Cross Urban Regeneration Project, London
This project in London is a perfect example of ESG adoption. The King’s Cross ESG Report 2022-23 highlights how this area has developed into a socially vibrant and sustainable community with the efforts of environmental, social and governance aspects.
Environmental Aspect
King’s Cross has set ambitious goals to achieve net zero carbon emissions by 2035. With over 200 hectares of forest to be planted in the UK, zero waste contribution to landfills, and recycling rates improving every year, King’s Cross is the largest mixed-use development in single ownership to be master planned and developed in over 150 years.
There are 3 new BREEAM buildings, 35 green roof spaces and 100% renewable energy supply for heat and power.
Social Aspect
King’s Cross is a place where people thrive. Since 2014, more than 1500 people have been placed at work through KX Recruit. Over 1547 apprenticeships developed by the KX construction unit since 2009.
Governance Aspect
King’s Cross believes a definite order is necessary to achieve ESG aspects. The ESG committee of King’s Cross has strong metrics and strategies to achieve these targets. There is constant tracking of progress and the necessary steps are taken for improvisation.
Godrej Properties Limited
Godrej Properties is one of the most trusted real estate companies in India. It has received over 400 awards including the ‘Environmental and Social Initiatives’ award at KPMG ESG Conclave 2023, the Gold award for ‘ Gender Equality’ at ICAI International Sustainability Reporting Awards 2022 and the ‘Most Trusted Real Estate Brand’ in 2019 from the Brand Trust Report.
Godrej Properties is present in 10 cities with its headquarters in Mumbai. GPL is committed to 6Ps which aims towards ESG aspects, according to the GPL Integrated Annual Report 2022-2023. 6P framework consists of products, partnerships, people, process, profit and planet.
6Ps Framework
Product: Create and implement sustainable goods and services over our whole development footprint. Recognize and handle the effects that our products have over their whole life cycle.
Partnerships: Engage in partnerships along the value chain to influence, cooperate, and co-create in order to establish a strong ecosystem for a sustainable future.
People: Ensure the wellbeing, joy, knowledge, safety, diversity, equity, and care of all of our workers, customers, and communities.
Process: Transform compliance into opportunity by allocating resources wisely and implementing effective procedures. strong risk management and assessment, particularly in the fight against climate change.
Profit: Create financial value by utilizing a long-term company strategy. Facilitate the creation of profitable relationships that benefit all parties involved in our value chains.
Planet: Reduce our dependence on finite resources and our environmental impact. As we scale up and broaden our carbon neutrality goals to include Scope 3 Green House Gas (GHG) emissions, we should concentrate on preserving the water positive position. and cut down on trash going to landfills.
As per this report, GPL has planted over 8755 trees in FY 2022-23, 11500 million litres of groundwater was recharged, and 1500 hours of employee volunteering during paid working hours were initiated as ESG efforts.
In terms of governance aspect, there were 100% suppliers compliant to code of conduct, 0 fatality cases at construction sites, 27.4% diversity ratio and 55% customer satisfaction role.
Key Performance Indicators (KPIs) for ESG
Key performance indicators (KPIs) are used to evaluate the overall performance of a company. It is based on ESG elements like greenhouse gas emissions, water conservation, water management, community engagement, human rights and corporate governance. The data should cover all these areas to be truly effective. It should be unique to your company depending upon the industry, geographical location and vision of the company.
Conclusion
Today, with the climate change in picture and human rights awareness, ESG aspects must be taken care of by all the real estate companies. It is necessary to combat the environmental issues, ensure community wellbeing and keep governance in order. Real estate companies are no more just limited to making financial profits, but are also inclined towards sustainability and stakeholder welfare. The two national and international case studies discussed about give statistical data and inferences to understand the growth and importance of ESG efforts in real estate sector.
