ESG metrics in real estate

By Anneli Tostar

“You can’t manage what you don’t measure.” Most sustainability professionals have heard this adage enough times to repeat it in our sleep (and possibly illicit an eye roll), but the unfortunate truth is that the “measure” part of the equation is often easier said than done.

As anyone who has spent an hour going through an MSCI or SASB report can tell you, ESG data is messy. How can we be certain that a company is actually scoring well on “human rights & community relations” or “access & affordability?” Especially when attempting to compare across industries, the definitions of what “good” performance looks like can be very relative, and the data is often full of holes. Worse still, companies run the risk of overselling sustainability reporting if it does not lead to meaningful change.

That said, for the real estate industry, some data is relatively simple to compare across regions and asset types. Our suggestions for where to start:

Energy efficiency. Basic energy efficiency benchmarking is something that all real estate owners (and investors in real estate asset managers) should understand. Measured in kWh/m2 or /square foot in the US, this data can be weather-normalized (to account for when a building is located in a particularly hot or cold climate). In the US, real estate owners can benchmark their buildings against others using Energy Star. The London Energy Transformation Initiative (LETI) has set their best practice Energy Use Intensity targets at 55 kWh/m2/year for office buildings. This may be a long way off for many buildings, but luckily a report by the Urban Land Institute also found that improving energy efficiency also boosts property values in Class B and C offices.

Carbon emissions/area. We understand the ongoing difficulties of getting whole building data (also known as Scope 3 data). However, if investors compared companies just based on their [weighted] carbon footprint, there would be a much more ambitious “race to the bottom.” Again, Energy Star can be a useful resource in the U.S., or companies can audit their carbon footprint by using a consultancy such as Longevity Partners.

Indoor air quality. It’s no secret that health & wellbeing are of greater concern post-pandemic. Particularly when trying to prevent airborne illnesses that cause respiratory symptoms, air quality is of upmost importance. RESET certification looks at ongoing building performance across a number of different pollutants.

Occupancy rates. Speaking of indoor air quality, low C02 levels are not necessarily a good indicator of a high-performing building (despite the case a presenter tried to make at a recent Greenbuild conference). The building could just be empty. And unoccupied real estate is not only a financial drain, it can also be a blight on the surrounding community. 

Employee turnover and maternal return to work. While these metrics are not directly linked to real estate, it is linked to the people who occupy the space, and after all, the primary purpose of real estate is to create spaces for people. If companies are not creating spaces – physical and otherwise – that are attractive to people, they will be less able to attract and retain their most valuable asset: their human capital. This is not to say that we should disregard the traditional financial metrics, as those can be very good indicators of high performing real estate. However, more data, including non-financial data on sustainable, on-going performance, is better—but only if that data is meaningful. By narrowing in on a select group of metrics to compare across companies and buildings, investors can make more informed decisions and ensure they are pushing progress across the right areas.


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