What is ESG in property management?

ESG (Environmental, Social and Governance) factors are fast becoming critical to the success of businesses across all sectors – and the property management industry is no exception. 

More than 80% of the buildings that exist today will exist in 2050, so developers, owners, managers, occupiers, and lenders all play a role in ensuring buildings are sustainably and environmentally responsible. 

Over the next five years, we are likely to see continued growth in environmental requirements for the real estate industry. Developers and managers will need to adapt to changing expectations around sustainability, social responsibility, and governance to stay competitive and meet the needs of tenants, investors, and society as a whole. 

In this blog, you’ll learn what ESG in property management is, why it’s important, and how it’s being implemented in the industry. 

What is ESG?

Short for Environmental, Social, and Governance, ESG refers to a business’ impact on the environment and society (both local and national), plus the transparency and robustness of its governance. It’s a measurement for how well environmental, social, and governance practices are integrated into operations and guide you toward providing a metric for benchmarking sustainability. Below are some of the key ESG factors in relation to property management. 

The ‘Environmental’ in ESG

• Net zero buildings: Develop real estate with a neutral or negative carbon footprint to help meet net zero goals. 
• LEED ratings: Construct and improve buildings to meet internationally recognized certifications such as LEED ratings. 
• Green leases: In commercial lettings, green leases oblige the landlord and tenant to manage and reduce a building’s environmental impact. 
• Energy usage: Monitor and reduce energy usage through infrastructural improvements and data–driven actions. 
• Water and air quality: Adopt practices that preserve or improve the quality of waterways and local atmosphere, such as reducing pollution or GHG emissions. 
• Material usage: In property development or refurbishment, use sustainably sourced and long-lasting construction materials. 
• Waste: Effectively manage waste by ensuring recycling or composting, grey water systems are in place, and ensuring dangerous waste such as raw sewage or industrial waste is disposed of safely and compliantly. 
• Smart facilities: Carry out detailed data collection and analysis, including using solutions such as sustainability management software. 

The ‘Social’ in ESG

• Social and affordable housing availability: Ensure people with lower incomes can afford housing by providing social and affordable housing options. 
• Equal opportunities: Ensure stringent adherence to the Equity Laws around letting for both residential and commercial properties. 
• Support for local communities: Invest in value-adding and life–improving services for local communities. 
• Social value metrics: Gather data on how your business impacts people’s wellbeing and quality of life. 
• Diversity, equity, and inclusion for stakeholders: Ensure your business reflects the communities you aim to serve and the groups you want to benefit. 
• Building safety: Ensure compliance with building safety codes and develop robust management practices to mitigate safety risks. 

The ‘Governance’ in ESG

• Ethical investments: Put your money behind ecologically or socially conscious initiatives and ensure partners and sponsors are associated with ethical causes or best practice. 
• Investment viability: Fully investigate investments and implement thorough due diligence procedures to ensure investments are financially sound. 
• Business continuity: Put robust plans in place to ensure vital services can be provided in the event of an emergency or major disruption. 
• Data subject security: Ensure resilient data security practices to minimize the risk of data theft or a security breach. 

Why is ESG important in property management?

Real estate organizations are coming under increasing pressure to provide greater transparency into their sustainability practices. It’s more crucial than ever that real estate and property managers set and implement clear and actionable ESG and sustainability goals. Below are some key reasons why ESG is important in property management. 

Improve investments

As part of meeting ESG goals, property investors should focus on assessing the whole life cycle of an investment property and then determine the investment’s long–term quality. This means extensive due diligence on investments and developments to ensure properties are meeting high quality standards, thus improving overall performance and enabling healthy returns for stakeholders. 

Meet consumer/investor expectations

Increasingly, tenants are looking for energy efficient, ecologically conscious rentals, whether commercial, office, or residential. Through adopting ESG criteria, such as improving energy efficiency, air quality, or ecological credentials, you can ensure properties are more attractive to tenants and increase demand and potential rental income. 

Improve asset value

Properties sustainably built and optimized for ecological responsibility are more likely to fetch a higher price when put on the market. By using ESG strategies and adopting criteria, you are investing in assets and driving up price and desirability. 

Meet regulatory or industry requirements

As governments around the world set and work toward net zero targets, increasingly stringent requirements for property managers are being laid down. By putting ESG targets into action, you can ensure your business and your portfolio maintain compliance in the face of tightening regulations. 

Key areas where ESG requirements will impact property management

Committing to ESG targets and maintaining compliance with ESG–related regulations means that your business must adapt to different ways of working and invest in different areas of your portfolio.  

Design and construction of new buildings

Increasingly, there will be a focus on incorporating sustainable materials, energy-efficient systems, and other features that reduce the environmental impact of buildings. This focus will be driven in part by regulations and building codes mandating certain standards, but also by market demand from tenants and investors who want to be associated with buildings that prioritize sustainability. 

Improving the environmental performance of existing buildings

Environmental performance improvements will involve retrofitting buildings with more efficient systems, e.g. LED lighting and smart building management systems, as well as making structural changes that improve energy efficiency. There will also be more attention paid to reducing the carbon footprint of buildings through renewable energy sources. 

Governance considerations

Improving governance will involve ensuring real estate companies operate ethically and transparently, focusing on fair and equal treatment of all stakeholders. There will be increasing pressure on companies to disclose their ESG performance and demonstrate they are actively working to improve their practices over time. 

The top 3 benefits of ESG for property owners and managers

While the upfront investment of ESG adoption may seem challenging for many property management organizations, it‘s crucial to look at the significant mid– to long-term benefits. 

Enhanced revenue and property value

Sustainable and energy efficient buildings enhance occupant/tenant satisfaction, improve rental rates, and lower operating expenses, thus increasing property value. 

More and more occupiers are now willing to pay increased rental rates justified by the offset in savings in operating expenses because of a more sustainable and energy efficient building. 

In addition, as organizations include ESG as a part of their corporate strategy, leasing “green space” will be a prerequisite to align with their corporate values, thus driving the demand for such buildings and reducing the likelihood of vacancy. 

Improved business reputation

By committing to robust ESG targets, you can also boost your public image and reputation and attract higher quality tenants, investors, landlords, and employees. 

By actively working towards upholding a sustainable, socially conscious, and well-run company, your reputation is likely to pay dividends in the form of improved trust in your brand – and a competitive advantage over organizations who are not prioritizing ESG. 

Risk mitigation

ESG commitments offset numerous risks. Vacancy rates decrease as sustainable and energy efficient properties become attractive in the market, and the enhanced performance facilitates improved client acquisition. Efficient buildings run by well-governed businesses are also have lower risk of high operational costs, litigation, and health and safety concerns. 

How MRI Software can help you in meeting your ESG goals and objectives

At MRI Software, we’re passionate about helping you leverage technology to meet corporate governance requirements and drive greater operational efficiencies. Contact us today to find out more about how our sustainability management solutions can accelerate your vision for sustainability.  

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