Commercial real estate (CRE) plays a significant role in today’s world economy but also leaves a significant environmental footprint. The CRE industry needs to become more sustainable with rising worries about climate change and social fairness. One key component of creating a more sustainable future for the industry is adopting an ESG framework.

Understanding the ESG framework

Investors who care about social issues often use the ESG framework when choosing where to allocate their funds. This framework includes three main areas: environmental, social, and governance.

The pillars of an environmental, social, and governance framework

The green movement in CRE aligns closely with the environmental factors of ESG. This involves the company’s environmental footprint, including carbon emissions, waste management, water usage, and energy efficiency. As the green movement in CRE advances, companies are increasingly scrutinized for their environmental stewardship.

Social factors examine a company’s relationships with its employees, suppliers, customers, and communities. This includes how a company treats its workers, how diverse it is, and how it helps the community.

Governance factors focus on how a company is run. This includes who leads the company, how much the top executives are paid, how the company is audited, and how well shareholders are treated.

Different standards and frameworks used

Several different ESG standards and frameworks exist worldwide for other locations and goals. Three common standards and frameworks used include:

  • Global Reporting Initiative (GRI): The GRI offers universal standards for reporting a company’s impact on global issues like climate change, human rights, and corruption, emphasizing stakeholder inclusiveness and materiality.
  • Sustainability Accounting Standards Board (SASB): The SASB helps companies disclose sustainability information that could have a significant financial impact on industry-specific standards.
  • Task Force on Climate-related Financial Disclosures (TCFD): To help quantify financial risks related to climate change, the TCFD created a comprehensive framework for disclosing these risks.

The role of the ESG framework in sustainable business

As sustainability becomes more important to investors, customers, and other stakeholders, the ESG framework is gaining prominence in the CRE industry.

ESG reporting: Why does it matter to commercial real estate owners?

ESG reporting has become a critical tool for CRE owners. By transparently reporting on ESG practices and performance, they can demonstrate their commitment to sustainability. This transparency can attract investors conscious of environmental, social, and governance issues. It can also help secure financing from banks and other financial institutions, integrating ESG risks into their lending decisions.

Driving meaningful change across the industry

The ESG framework can also help bring about real change. By setting clear ESG goals and measuring progress, CRE companies can lessen their impact on the environment, improve their social impact, and make their governance practices better. ESG green buildings showcase the potential and measurable benefits of applying ESG principles to the CRE industry.

How good ESG practices can benefit your business

Embracing ESG practices isn’t just about dodging risk—it opens up significant growth avenues. Companies that focus on environmental practices often see a boost in operational efficiency—for example, energy-efficient buildings lower energy costs while reducing carbon emissions. Likewise, optimized waste management can cut disposal costs and generate revenue if waste materials are repurposed or sold.

Moreover, strong ESG performance appeals to investors, potentially reducing financing costs. Investors are more conscious of ESG issues and are willing to invest in companies with higher ESG performance, sometimes even at a lower return. This reduces a company’s cost of capital and expands access to funding.

Innovations and trends in ESG integration

Companies proactively incorporate ESG factors into their strategic planning, decision-making processes, and supply chain management. There’s also a marked trend towards greater transparency and accountability in ESG performance, driven by stakeholders and regulatory bodies demanding more comprehensive reporting and sophisticated metrics.

Thankfully, new technologies make it easier to include ESG practices in business operations. From using an ESG data platform to track and report ESG performance to leveraging automation systems to improve sustainability, these new tools can help CRE companies reach their sustainability goals and improve their profits.

Targeting a sustainable future with Proptech

Proptech plays a pivotal role in advancing ESG practices within the real estate sector. By integrating technology into property management, Proptech solutions can greatly enhance operational efficiency, tenant experience, and, importantly, sustainability measures.

Optimizing building operations: Proptech can help monitor and manage energy consumption, water usage, and waste management in real time, enabling buildings to minimize their environmental footprint.

Enhancing tenant experiences: Proptech solutions offer insights into tenant preferences and behaviors, allowing for the creation of more sustainable and socially responsible living and working environments.

Promoting sustainability: Proptech tools are designed with sustainability in mind, ensuring buildings and properties align with ESG goals.

However, the true potential of Proptech is realized when various systems and solutions work in tandem, sharing data and insights across a unified ecosystem. ProptechOS creates that ecosystem by acting as an operating system for your Proptech solutions and all ProptechOS partners.

In conclusion, as the commercial real estate industry continues its journey towards greater sustainability, Proptech will undoubtedly play an instrumental role in shaping its future, ensuring that ESG goals are not only set but also achieved.

Per Karlberg

Per Karlberg, a distinguished technology executive, demonstrates deep expertise in the nexus of real estate, technology, and ESG. Holding advanced degrees from Lund University, and with key roles as CEO of our company and Co-Founder of ProptechOS, he has shaped the proptech field through significant contributions to real estate technology advancements. His instrumental work in co-authoring “The realestatecore ontology” has facilitated digital transformation and ESG breakthroughs in the real estate sector.

Read his full bio and information here.