The next step in ESG: Continuous performance measurement becomes the norm
The pressure on companies, certainly in real estate, to make their impact on the environment and society visible is increasing rapidly. Regulation is increasing worldwide and stakeholders are demanding more transparency.
Investors are looking for information that will give them a competitive advantage. All in all, this means that Environmental Social Governance and measuring impact are at the top of the agenda, also in the world of real estate. Sustainability, but also the S of social (health, well-being, social responsibility etc.) are now a key topic in the boardroom, when making better business decisions.
Regulators, stakeholders, investors and competition with other companies are putting pressure on real estate companies to take action to disclose their performance on a wide range of ESG issues. This is no longer limited to the energy performance of buildings, but also includes topics ranging from health, welfare and inclusiveness to safety. Stakeholders, from tenants to shareholders, banks and potential buyers, want transparency when it comes to these topics.
ESG and measuring impact differ from the traditional financial data that companies use to measure their performance by going beyond measuring short-term economic benefits. It is about the sustainable and social benefits in the longer term. And with that comes financial benefits, too, as buildings may be easier to rent out or sell at a lower gross initial yield.
This certainly does not only apply to real estate: companies in all sectors are faced with an increased urgency to collect and analyse ESG and impact data and take action to improve their performance. Collecting and analysing the vast amount of data needed to measure the full spectrum of ESG requires cross-functional knowledge and skills that only an integrated approach with scalable data infrastructure and analytics can provide.
Market pressures continue to grow and to remain competitive, companies go beyond simply making ESG results visible, for example in building certifications. Continuous, periodic, sometimes even real-time measurement is becoming the norm. Industry standards and government regulations increasingly demand it.
Periodic and real-time measurement of impact performance shows where real estate companies can improve within their portfolio and generate favourable financial results in the longer term. As regulators increasingly enforce, measuring ESG performance on an ongoing basis is also a way to avoid fines. This year, Google, BNY Mellon and other companies experienced the damaging consequences of insufficiently living up to promises on their environmental and social policies. Many more companies will follow.
To enable measurement and reporting of environmental and social impact, we see the strong emergence of technological tools that help collect and report ESG information efficiently. Real estate companies that fail to make their environmental and social impact transparent build up risks for their stakeholders, fail to comply with regulations, have a weak competitive position and miss out on potential investments and partnerships.