The demand for ESG (environmental, social, governance) reporting in the real estate sector has grown steadily in the last 20 years. Investors, companies, governments, and funds across the globe are now more focused on addressing different issues facing the planet, increasing transparency, reducing risks, and drawing responsible operating decisions. Consequently, ESG reporting has emerged as an important requirement for developing long-term value.
Most commercial real estate companies have in the past been directing the bulk of focus on the environment, such as green building and optimizing natural light. Although it is a good thing, it falls short on sustainability because it does not factor in the social and governance criteria. So, if you do not want your ESG report to get rejected or labeled greenwashed, it is time to complete it by adding the social and governance parts. So, are you ready? Here are some useful considerations.
Sustainability Reporting: Stakeholders in the Real Estate Business
When defining any ESG metric, the first step is a deep analysis of key challenges & opportunities and stakeholder awareness. By roping in stakeholders, it becomes easy to pinpoint the areas of concern for various categories. So, here are the main groups of stakeholders in the real estate department:
- Investors.
- Clients/tenants.
- Contractors.
- Supply chain/vendors.
- Community.
- Executive/leadership of the company.
Once you have identified the stakeholders, dig deeper to establish the areas of focus for each. For example, the community and vendors might be interested in more engagement while the leadership vouches for enhanced transparency and diversity. These attributes should inform the reporting topics that you select for the real estate company.
Social and Governance Metrics to Consider for the Real Estate CompanyÂ
Social MetricsÂ
Unlike the “environmental” criterion, social metrics are not easy to quantify. In many instances, the social risks relate to both human capital and social capital. Apart from offering people a place to work in, social-related metrics help you assess how various assets provide value and enhance the community’s welfare. Note that the social metrics extend to labor-management and human rights issues for suppliers and other associated partners. Here are some examples of social metrics:
- Issues such as safety, litigation, and penalties in the supply chain.
- Data security.
- Labor practices.
- Staff remuneration.
To get it right on social metrics in ESG sustainability reporting, you should consider using specific questions, including the following. Do you have skilled labor? Are workers compensated appropriately? Do vendors used in the supply chain follow a defined code of conduct? Do you track employee satisfaction?
Governance MetricsÂ
Instead of focusing on specific portfolios or assets, governance mainly targets to determine how the company is led. Good governance practices help impact a company’s capability to win the community and investors’ trust. The structures adopted for governance should detect different conditions that could have negative implications, such as boycotts and opposition by shareholders. So, here are some useful metrics for the governance criteria:
- Company ethics.
- Remuneration of staff.
- Board structure.
- Accounting and transparency.
Here are some specific questions that you can ask to gather data on governance. Is there a risk management team for the company? Is the company consumption information available to the public? Does your real estate company use green leases?
Adding the social and governance metrics to your real estate company’s sustainability reporting efforts is crucial to ensure it is complete. Remember that you need to strictly follow the ESG reporting principles, such as materiality and verifiability, to generate high-quality reports. On top of all these, we must indicate that ESG reporting will only work the way you want when done using appropriate software. Top-rated ESG reporting software can help you follow multiple metrics, automate data collection, and generate accurate reports. Visit Diginex.com to talk to a professional in ESG sustainability reporting and get the best apps for your real estate company.
