What is ESG, and why do you need to track it?
Environmental, Social, and Governance (ESG) is a framework often used by investors, analysts, and stakeholders to assess a company’s sustainability and responsible business practices. They are increasingly considered essential indicators of a company’s long-term financial performance and risk management. Many socially-conscious investors use a company’s adherence to ESG standards to determine if and how much they’ll invest.
ESG strategies are becoming an increasingly central part of doing business. According to Deloitte’s 2022 Sustainability Action Report, “99% of public companies expect to invest in ESG data and reporting technology in 2023.” According to GRESB, 95% of investors use ESG as a significant part of their decision-making.
What do ESG strategies and standards look like in residential real estate? What data are your investors looking for, and where can you find it?
We’re breaking down the different parts of ESG and some standard terms and names in the industry. Learn how to measure your impact and use data to help your portfolio stand out.
Breaking down ESG
The environmental arm of ESG primarily focuses on creating sustainable models for doing business and mitigating the worst effects of climate change on various communities. According to the UN’s Paris Climate Agreement, many members of the international community, including the United States, have pledged to become carbon-neutral by 2050. ESG-focused investors are interested in seeing how your buildings are working towards this goal of sustainability.
Environmental metrics you can track in your building include:
- Usage and reduction in energy or emissions
- Reduction in waste created at your properties
- Increasing efficiency in recycling programs
- Increasing water efficiency
What constitutes social impact can be hard to pinpoint; thus, reporting and tracking for social impact has historically lagged behind environment and governance.
Regarding social impact reporting, we suggest looking toward the needs of your most important stakeholders: your residents. Resident needs will look different for every building, but at Esusu, we believe that positive social impact starts with financial health and stability.
Esusu offers access to rent reporting and rent relief, two services that can exponentially increase the financial health of your residents, resulting in a better quality of life for them and positive business returns for your portfolio. Our clients track the following social impact metrics:
- Improvement in credit scores for their properties/portfolios
- # of credit scores established
- New average portfolio credit score
- Rent relief deployed
- % renters who have built prime credit scores
- # of new car and student loans unlocked
- # of mortgages established through access to new credit
Other social impact metrics to track may include access to educational programming, after-school care for residents, or job fairs.
To learn more about how Esusu customers scale and measure their social impact, check out these examples of using Esusu data in their annual reports.
In ESG, governance refers to how your company is run, who has the decision-making power, and whether your business decisions are ethical and living up to your broader goals of social and environmental impact.
For example, is the composition of your board of directors diverse? Do you work with vendors with similar environmental and social goals to your building? Do you source funds and materials from ethical and verified sources?
Your Corporate Social Responsibility (CSR) program will likely inform many metrics and reporting here. Your metrics may tie back to year-over-year improvements, like measuring how leadership diversity has grown in a 12-month period. Or you can use employee surveying, workplace awards, or improved benefit models to showcase your efforts in the governance sector of ESG.
Being transparent about how your organization’s governance works is a massive part of the success of your overall ESG campaign and securing the trust of your investors and stakeholders.
Who is tracking ESG in real estate (and why)?
Several organizations track and provide ESG ratings or assessments for real estate companies and properties, giving them a comprehensive understanding of ESG performance in the sector. Some of the leading players include:
Global Real Estate Sustainability Benchmark (GRESB)
Your investors will likely use GRESB to analyze and assess your ESG data. GRESB is the investor-led global benchmark for tracking and measuring portfolio-level ESG efforts in real estate.
Using benchmarks that align with international initiatives like the Paris Climate Agreement and Sustainable Development Goals, as well as the overall ESG data of the real estate industry, GRESB scores self-reported data from submitted portfolios to give businesses and investors an idea of where they stand in regards to ESG, and whether they’ve reached their stated goals for the year.
GRESB data is an invaluable tool in setting and achieving your ESG goals and getting a sense of the state of ESG yearly.
Principles of Responsible Investment (PRI)
The Principles of Responsible Investment is another organization pushing for better ESG alignment. Though the PRI is not exclusive to the real estate industry, it was established by investors, and real estate is a big part of the equation for investors.
The PRI sets out six principles for better investing and offers investors guidance on investing in ESG-focused organizations.
The Carbon Disclosure Project (CDP)
The Carbon Disclosure Project is a non-profit organization running the international environmental disclosure system. They aid companies, investors, and governmental agencies across the globe to track and measure their carbon footprint and are one of the leaders in creating engagement on environmental issues.
Each year, CDP scores organizations on their environmental impact based on annual data CDP collects data and helps to expand transparency and action in the environmental space.
The Sustainability Accounting Standards Board (SASB)
The Sustainability Accounting Standards Board works with organizations to disclose their environmental impact to their investors, focusing on sustainability’s unique role in a company’s cash flow and access to capital.
SASB works with 77 industries, including real estate, and tailors their benchmarks and scoring metrics according to each sector’s risks and opportunities.
Want to learn more about tracking ESG metrics in real estate?
Check out our case study with Related Affordable to see how Esusu data and services helped the affordable housing provider expand its social impact strategy and provide low-income residents access to financial services and literacy.
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