Kanon Tsuda, Senior Sustainability and Energy Consultant and Nadine Gruben, Sustainability and Energy Analyst

Market Insight – What are the top 5 ESG aspects real estate investors prioritise?

ESG is becoming increasingly critical across sectors and geographies in the global frenzy not to exceed the Paris Agreement threshold of 1.5°C above pre-industrial levels. To this end, it is paramount we address the key interlinking elements that must be considered within sustainability frameworks. Of course, tackling all these elements at once is neither feasible nor effective. It may in fact deter progress, since more critical aspects may be overlooked or poorly prioritised. Therefore, a key step to strategising ESG relies on scrupulous prioritisation. 

Peer review benchmarking 

Our Strategy team here at Longevity Partners has consolidated the myriad of market analyses conducted as part of our peer review service offering to analyse the top ESG issues currently at the forefront in the real estate sector. The peer review process provides a benchmarking output of how a firm compares against a selection of competitors of similar sizes and activities, with a focus on identifying best practices. This observes 17 material ESG topics, ranging from carbon emissions and biodiversity to well-being and responsible supply chains, ranking relevant activities in each topic on a scale of 0-5. 

Data from more than 80 different reviews (i.e., organisations) from the past three years were used in this research. These range from small local investors and developers to large multi-international real estate investors and developers.  

The ESG priorities today 

Our in-house analysis demonstrated that the following ESG aspects are predominantly being seen as priorities by real estate firms: 

*Please note that these aspects are listed in order of priority, with number 1 being seen as the highest priority for real estate firms according to our Strategy data review.

1. Local community engagement 

Communities are defined as individuals or groups that are economically, socially, or environmentally impacted by the company’s operations. It can range from individuals living adjacent to the organisation’s operations to those living at a distance who are still likely to be impacted by these operations. Where possible, a company is expected to anticipate and avoid negative impacts on communities. Establishing a timely and effective stakeholder identification and engagement process is important to help the company to understand the vulnerability of communities and how they might be affected by the company’s activities. Initiatives such as setting up charity programmes or performing a social impact assessment are sound starting points. As the emphasis for Social within ESG grows, companies would be expected to integrate robust social impact frameworks with monetary commitment, reporting transparency and robust partnerships, such as that of Great Portland Estate’s. 

2. Business ethics 

Business ethics refers to the moral principles and values that guide and govern the behaviours and actions of individuals and organisations in the business environment. It encompasses the application of ethical standards to various aspects of business conduct, including decision-making, interactions with stakeholders, and the pursuit of organisational goals. Non-compliance with ethical standards places business continuity in jeopardy. Implementing robust policies and procedures on anti-corruption, intellectual property, environmental and socioeconomic compliance, and political contributions safeguards from governance risks of the organisation and its employees. Procedurally, dedicated programmes and positions may seek to ensure adequate attention is consistently placed to this material area. For example, the CBRE Group is equipped with an Ethics and Compliance Programme which includes an Ethics HelpLine for anonymous reporting, alongside a Chief Compliance Office and a Global Head of Investigation to monitor and supervise the programme. 

3. Diversity, equity, and inclusion (DEI) 

Simply put, DEI is critical for good governance as well as moral responsibility. Progress on DEI means that a company takes an active stance on creating equal opportunities, irrespective of gender, ethnicity, cultural background, disability, age, religion, sexual orientation, etc, as well as positionality in the firm. Resulting benefits include gaining a greater pool of talent for the business, being able to reap the benefits of a broader market, improved productivity, and enhancing reputation and brand. 

Basic actions to kick off DEI ambitions often start from monitoring quantifiable metrics at employee and Board levels, such as % of male/female, age group distribution and racial background. On the implementation end, these are geared towards flexible working or parental leave-related measures. More novel but popularising efforts, on the other hand, look to solidifying target areas and roadmaps on diversity metrics to increase accountability for proactive growth, such as BlackRock’s ambitious global DEI strategy. 

 4. Climate change adaptation and resilience 

With the increasing frequency of natural disasters and drastically altered weather patterns affecting everything from seasons to food, climate change poses a great danger to all structures and resources. To address this challenge, emphasis should be placed on adapting and building resilience, which can be achieved through sustainable site selection and development practices. Our clients frequently engage in conducting climate risk assessments to identify climate-related concerns and recommend corresponding strategies to mitigate them. It is crucial to thoroughly map the climate risks to which your assets are exposed, enabling the implementation of appropriate measures to safeguard them for the future. Developing a natural hazard plan can be a good starting point. For the largest scope of impact, companies like UBS have been demonstrating their climate commitments by developing an in-house climate risk risk management framework and ESG dashboard, as well periodically performing scenario analyses since 2014. 

5. Carbon emissions 

The real estate industry’s shift towards achieving net-zero carbon emissions is crucial since its significant environmental footprint necessitates its active participation in decarbonisation efforts. Recent legislation like the Paris Agreement provides the framework for this transformation. Achieving net-zero carbon is important because it mitigates climate change, reduces greenhouse gas emissions, and ensures sustainable development. For example, British Land committed to a Net Zero Carbon portfolio by 2030, including reduction targets of embodied carbon and operational carbon, and with a Transition Fund to facilitate the implementation. By embracing renewable energy, energy-efficient technologies, and sustainable construction practices, the industry can contribute to a more sustainable future while meeting regulatory requirements and aligning with global climate targets. Furthermore, minimising greenhouse gas (GHG) emissions and maximising energy efficiency are both key to not only reducing the company’s contribution to climate change, but also gaining reputational traction and cost savings in the longer-term.  

While our market reviews have highlighted these five ESG areas as current focal points for real estate investors, ESG priorities are various and differ depending on each unique investment landscape. For instance, responsible supply chain management may have a larger stake in logistics operations, and resource and material management may have more weight for investments focusing on developments. The sustainability market, as well as the legislative and societal environment, are also constantly evolving as ESG needs continue to be discussed and re-evaluated in the global arena. Companies need to define and frame their own ESG priorities, understanding where there are risks and opportunities, as well as the nuances of stakeholder expectations. 

How can Longevity Partners help? 

Longevity Partners’ Strategy service provides holistic support in developing bespoke ESG strategies and roadmaps through rigorous materiality assessments. Adjusting to specific needs, we conduct market analyses of policy reviews, peer reviews, and legislation reviews, as well as stakeholder engagements to inform these assessments. 

Enquire now to learn how we can support your journey towards creating positive impact for your business, the environment, and our society. 

About the Authors 

Kanon Tsuda is a Senior Consultant in the London office; and Nadine Gruben is a Sustainability & Energy Analyst and the Country Lead for ESG Strategy in the Netherlands. 

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