By Lori-Ann Bernard, ESG McGill Analyst
Real estate is an asset class with a significant influence over numerous industries because of the players involved with its construction, approval, and valuation. It deals with the organization and distribution of physical properties, which are heavily influenced by government regulations through guidelines for how and where properties are built. Governments are also linked to the real estate sector through infrastructure development and the creation and maintenance of public housing.
With the release of different reports, beginning with the Paris Climate Agreement, the past few years have shown the importance of implementing ESG assessments for the construction of new buildings. The SASB classifies real estate as part of the infrastructure industry and believes that environmental and business model & innovation aspects are the most material standards (Table of Materiality: SASB). This sector needs to quickly adapt ESG practices as it deals with tangible assets that significantly impact the surrounding environment, particularly GHG emissions. The construction and operation of new buildings are responsible for 40% of GHG emissions globally (S&P). Real estate firms and REITs are quickly implementing the development of standards from SASB and assessments from GRESB, as investors use these new metrics in their comparative evaluations (GRESB). Investors are looking for socially responsible real estate firms. They have available tools to evaluate groups on this front, incentivizing firms to rapidly move towards ESG as those not involved in GRESB or SASB are falling off the radar of these investors. Power is shifting to consumers who are influencing real estate firms’ actions. Much of this can be reflected through the “energy consumption, GHG emissions, water consumption, and waste [management]” of their properties (S&P). As a result, real estate firms have quickly moved toward implementing ESG in their property reporting and evaluations (Climate Strategy and Partners).