ESG: a whole-company commitment in real estate

For an organization looking to bolster its ESG (Environmental, Social, and Governance) efforts, appointing an ESG Executive is a start, but fostering a company-wide culture of sustainability is where the real journey begins. Let’s explore why embedding ESG across your organization matters.

Why is ESG important for businesses and investors

ESG refers to a set of practices, including policies, procedures, and metrics, that organizations use to minimize negative impacts or enhance positive outcomes on the environment, society, and governance structures.

In recent years, investors have become increasingly aware of the importance of ESG criteria in their decision-making. Consequently, many companies have started integrating ESG into their operations and business strategies.

Integrating ESG into existing structures 

ESG is increasingly becoming a well-established concept, yet many organizations still struggle with its implementation. This is often because people mistakenly believe that tackling ESG issues demands completely new governance structures and business strategies, making the task appear overwhelming. However, integrating ESG practices into a company’s existing governance design and strategy is more effective. For example, most companies already have an Enterprise Risk Management (ERM) strategy in place, which can be extended to include ESG-related risks and data resulting from climate change. 

A matter of ownership

Traditionally under one department like Sustainability, ESG should now extend beyond a single function.

Cross-functional collaboration

Well-governed companies shouldn’t see establishing good ESG governance as an extraordinary challenge. ESG integration requires collaboration across various departments, such as operations, finance, human resources, and marketing. The key is to appoint the right leader to work within the existing structure and collaborate with people to embed ESG into the company’s core operations and DNA (KPMG, 2022). Ownership should be shared across the organization, ideally under a senior executive or team, such as the Chief Sustainability Officer (CSO) (or Head of ESG) should oversee integration and report to the board or another senior leader (Chief Financial Officer, Chief Operating Officer, or Chief Marketing Officer…) if no dedicated CSO exists. Alternatively, a dedicated ESG committee or task force can oversee integration.

Regardless of who takes ownership, it is important to ensure buy-in and engagement from across the organization, and that ESG considerations are integrated into decision-making processes. This can be achieved by establishing clear ESG goals and targets, providing training and education on these issues, and regularly reporting on the performance to all stakeholders.

This integration embeds sustainability into daily operations and demonstrates a commitment to long-term value. At Deepki, over 70 international in-house consultants thoroughly train clients’ internal teams on their ESG journey.They help guide you with the use our SaaS end-to-end platform, to develop and implement tailored strategies. Our experts, with extensive experience, provide customized analysis to improve decision-making, save time, and focus on strategic choices. We help you quickly adapt to ESG goals and regulations and anticipate long-term trends, enhancing the value of your real estate assets.

Ensuring board involvement 

To ensure proper ESG governance, the board must be aligned with ESG priorities and strategy. If ESG maturity is low or the value chain is complex, the board may assign ESG oversight to a board subcommittee. One of its primary objectives is to oversee the integration of ESG into corporate strategy and operations. This will allow more robust agenda setting and discussions. The board may need to adjust its own governance to accommodate ESG oversight into its structure. There is, however, no single formula, as each organization has unique requirements.

Communication and long-term commitment at the company level 

After appointing the ESG leader and ensuring board involvement, companies must clearly communicate their priorities to all stakeholders and build an ESG-aware culture. Addressing these issues takes time, but the increasing importance of ESG necessitates a long-term commitment. Setting long-term targets is crucial as the company’s ESG program will need to evolve continuously. The rapidly changing landscape demands strong ESG governance to remain competitive. Starting now will help companies establish themselves as leaders, meeting the expectations for transparent and reliable ESG reporting and performance from customers, employees, investors, and regulators. 

The market needs talent, technology, and data, now

A study conducted by Deepki with senior European commercial real estate asset managers in the UK, Germany, France, Spain, and Italy controlling combined assets under management of $240 billion, highlights significant challenges ahead. Nine out of ten respondents say that at least 20% of their real estate portfolios are at risk of becoming stranded assets in the next three years due to poor energy performance. The research shows the commercial real estate sector understands the need for investment. However, time and a skills shortage are major barriers to success. 

Asset owners and institutional investors are developing strategies to address these problems, but success is dependent on the tools at their disposal – talent, technology, and data. The majority (85%) say that their business has plans to upskill or hire more people to help ensure the net zero challenge can be met. Achieving net zero by 2030 requires both behavioral and technological changes, coupled with market incentives, regulations, and policies.

Read more on ESG: ​​An operational shift for real estate companies

It takes a village: new jobs and new processes 

In addition to the company’s involvement in ESG, the entire sector must also adapt to achieve these goals. Training a new generation focused on achieving “net zero” across engineering firms, project management, contractors, construction and maintenance companies, auditors, consultants, and beyond is essential. Renovating massively and quickly requires proven processes, reliable measurement methods and solid standards to evaluate financial impact, and so on. These challenges won’t necessarily create new professions but will secure existing ones and create new jobs. The evolution of existing jobs through continuing education, certification, and other professional accreditations will likely be more effective. 

Andy McDonald managing director of real estate finance, HSBC U.K. says, “Sustainability is an issue that affects every property owner, developer and tenant and time is clearly of the essence. As an industry, we simply cannot afford to ignore the need for action. We must all play a part in securing a just and timely transition to net zero.”

One important and often overlooked aspect of ESG is taking responsibility beyond your own business actions. This includes being aware of what is happening at the supplier and subcontractor level. Our impact goes beyond our own carbon footprint. It also extends to the footprint of clients and the entire supply chain.

Upskilling employees

According Vincent Bryant, CEO and co-founder of Deepki, today, the sector is unequipped to meet the current demand for qualified resources. With planning starting now, and support from educational and professional organizations, career changes toward “net zero professions” can offer stable, meaningful jobs for millions.

ESG begins with upskilling employees. It impacts every role within an organization and encompasses a wide range of processes and decisions. By focusing on upskilling, you can enhance employees’ skills in ESG analysis, reporting, research, communication, and regulatory knowledge. At a minimum, employees should have access to learning the technical aspects of ESG, including climate change concepts, business implications, and material ESG risks and opportunities. 

For asset managers, for example, the challenge is adapting the organization’s processes to internalize the ESG reflex, particularly the net zero reflex. This means taking ESG and climate change into account across all endeavors: 

• evaluating an asset acquisition (ESG due diligence), 
• establishing investment plans, 
• contracting with property managers, 
• attracting and welcoming new tenants, 
• choosing qualified “net zero” project managers and general contractors, 
• establishing reports for investors, 
• complying with regulations and more.

ESG is everyone’s business

We’ve seen this: top barriers to engaging with ESG are a lack of necessary financial resources and skills, along with a sense that adopting ESG is simply too complex to work for their organisation. Overcoming these challenges requires company-wide engagement and strategic planning.

Data is also the foundation upon which successful ESG strategies are built. Companies need a solid data strategy to elevate their businesses to the next level. This journey begins by addressing several critical questions: Where is the data, and how is it organized? How can technology assist in preparing this data for easy access? What technology is best suited for the task? 

Imagine a world where data flows seamlessly, accessible and organized, from a single, reliable source. This vision is attainable when companies adopt a format that is both usable and easily findable. However, achieving this requires more than just a vision; it demands a strong foundation and a well-defined framework. These are essential to navigate the path of improvement and technological enablement, ensuring that data remains accessible and easily connected.

To explore Data Collection in depth, check out Deepki’s interactive infographic—your essential guide to mastering ESG data collection in real estate. It covers everything from tackling major challenges to harnessing advanced ESG technology.

The role of CFOs in data-driven transformation

As the stewards of an organization’s financial health, Chief Financial Officers (CFOs) play a pivotal role in this data-driven transformation. They must explore how new technologies can enhance and complement their existing processes, particularly in investor reporting. The ability to justify the cost component of ROI is crucial. Implementing new technologies leads not only to cost savings but also to greater accuracy and time savings. This allows CFOs and their teams to focus on strategic, value-added activities.

CFOs need a clear, C-suite-aligned strategy that integrates solid technology while mitigating risks. History has shown that building a robust governance model from the outset is far more effective and less costly than revisiting and correcting mistakes later. By laying this groundwork early, companies position themselves for sustainable growth and success in an increasingly data-driven world.

Conclusion

Effectively conducting ESG strategies allows companies with strong ESG performance to be viewed as lower-risk and more sustainable investments. This positive perception can enhance access to capital. Investors are more likely to provide funding to companies that align with their values and reduce long-term risks. Indeed, investors increasingly prioritize sustainability in their decision-making processes. According to a 2023 KPMG survey, only 12 percent of global real estate investors view sustainability as less important than financial returns, indicating a significant shift in investment priorities.

Non-compliance with ESG standards poses a significant risk to securing contracts with organizations that prioritize working with ESG-compliant organisations. This highlights the importance of integrating ESG considerations into every aspect of the business, from procurement to operations, ensuring the company meets the expectations of partners and clients.

Read more: ESG compliance in real estate

Understanding and addressing climate change is crucial for industries such as real estate, where accessing accurate data is key to meeting investment challenges. The journey to achieving net-zero emissions is immense. It is essential to embed these principles into the very essence of corporate culture. From the C-suite to entry-level positions, a shared sense of purpose aligns individual goals with broader societal needs. This shift in mindset cultivates a culture of responsibility and sustainability, allowing companies to create effective strategies to meet ESG goals.