The Role of ESG in Real Estate

Published on:
by Eric Burdon
Aerial image of typical McMansion suburban residential development

From houses to apartment complexes, having shelter is a crucial part to human survival and betterment. The fact that so many people are living on the streets as well as tenants paying over 30% of their wages in rent, it’s clear that real estate plays a crucial role in ESG. Not only with addressing these particular issues but also those that encompass other ESG issues.

Every industry is responsible for ESG in some regard, and in the case of real estate it covers a broader spectrum. There’s a clear reason for why one of the of the UN’s 17 SDGs revolves around tackling the housing crisis around the world. Specifically, the role of real estate in each sector is as follows.

Real Estate’s Environmental Responsibility

Not only do real estate companies focus on housing, but because they are using raw materials to build, they need to pay attention to the ecological consequences of materials selection. Right out the door, because large apartment complexes as well as regular homes and condominiums require a lot of resources to build, real estate companies have to consider a wide range of things, including:

How energy efficient the building will be: Even though the purchaser will ultimately determine energy usage and consumption, in apartments and condominiums, real estate companies can choose how energy is provided. With that in mind, companies could invest in solar or wind technology to generate power rather than traditional methods.

How well they meet green building standards: Standards like LEED and BREEAM set clear guidelines for how buildings should be structured. Following and exceeding those standards is ideal.

How sustainable their resources are: Raw materials demand a lot of resources. Sourcing lumber from sustainable methods is better for example than from non-sustainable sources.

How well they can manage water consumption: Water pumps and other water saving technologies can easily be installed. Especially in apartment buildings and other housing.

How climate resilient a home can be: With weather being so volatile, homes need to be built to handle the elements and use good enough material that it doesn’t require constant repair.

Real Estate’s Social Responsibility

From affordable housing to providing housing to less fortunate individuals, real estate’s social responsibility is meant to address these issues and extend to include other important points like:

Engaging with the community: In order to address needs and concerns. This is on top of keeping those in mind when considering other real estate developments.

Creating spaces that promote an individual's health and well-being: Things like homes having large windows that allow for natural light as well as have plenty of space to move around make a big difference. Beyond that, apartment buildings having green spaces, recreational areas, or swimming pools can help too. Lastly, having good indoor air circulation and quality is something else to consider.

How well they are treating staff and construction workers: Even if many working for real estate companies are on contracts, it’s important that real estate companies ensure workers are treated well while working on these projects. This also extends to maintenance staff for apartment and condominium complexes.

Diversity and inclusion: That extends not just to staff but tenants and home buyers. Real estate companies - and other companies for that matter - shouldn’t be doing racial profiling with any of their business.

Related reading: Improving Diversity, Equality and Inclusion In Your Workplace

Real Estate’s Governance Responsibility

Whether they are managing homes, or building homes, or renting them out, it’s important that real estate companies are transparent in their management practices. What this looks like for real estate companies is how well they balance the following activities:

Their ethical practices: From transparency to integrity and business practices, there shouldn’t be any surprises or mysteries about how they operate and what they are all about.

Their relationship with stakeholders: There’s a big difference between being connected and disconnected from communities. It can’t just be bonding with investors. Real estate companies need to build a lasting relationship between tenants, the community they operate around as well as any home buyer they may deal with.

How well they can manage risk: From regulatory compliance to property devaluation, environmental and social issues, and customer/tenant satisfaction, real estate companies need to have measurements and business practices to mitigate any present and future risks. 

Their cybersecurity: This is also crucial since they have banking information from tenants, their own financial records, as well as property ownership data from home buyers.

The diversity of their board of directors: The ones who are making big decisions for the real estate company should offer different perspectives and experience to the table. This includes diversity.

Related reading: The Importance of ESG in Real Estate

Real Estate Responsibilities Are Far Reaching

As noted at the start, shelter is one of the fundamental human rights. The real estate sector, in whatever particular form, provides this. As such, everything from their daily operations to the finished product and how they serve communities is impacted by their ESG practices - whether they are there or not, since the improvement of the places where we live, work, and conduct our lives should be tied to the notion of social and environmental health.

The biggest and best thing real estate companies can do is to consider their role in both improvements and the current problems we face, especially when it comes to housing and tackling homelessness.

KnowESG is your one-stop hub for ESG action and impact. From news, events, and courses, to published ESG ratings.

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