All companies of all sizes in all industries can benefit from setting ESG goals and targets. ESG is a general framework by which companies can assess how well they are meeting certain objectives related to the important aspects of environmental, social and governance issues.
By setting clear ESG goals and objectives, real estate companies can better manage their risks and take advantage of opportunities related to ESG criteria. These targets should be measurable outcomes companies strive to achieve to meet ESG goals.
ESG plays a vital role for real estate companies, as real estate can dramatically impact economic, social and environmental systems. That’s why it’s crucial for businesses in the industry to understand ESG goals and targets so they can develop effective strategies to improve their performance.
Here are some ways to do so.
Setting Effective ESG Goals
The first step in implementing ESG in real estate is to set clear and specific goals. These should align with the overall business values and strategy of the company so they are not only easier to achieve but work in concert with everything else the company does.
Like any other project, your ESG targets should be both achievable and measurable, and they should be relevant to the real estate industry. When setting your goals, you should consider two of the most commonly-used ESG frameworks for the industry — the Global Real Estate Sustainability Benchmark (GRESB) and the United Nations’ Sustainable Development Goals (SDGs).
The process of setting effective ESG goals should include engaging with your key stakeholders. This includes your tenants and real estate investors.
The goal in engaging with them should be to understand what their priorities and expectations are in regard to ESG so that you can also meet their needs.
Developing an ESG Strategy
Once you know what your ESG goals are going to be, it’s time to develop an ESG strategy. This should be comprehensive and integrate all ESG considerations into the business’ standard operations.
The goal here is to identify and prioritize ESG risks and opportunities that are material to your company’s specific real estate assets. For instance, commercial real estate companies might have different environmental risks than those companies in the residential sector — and vice versa.
Your ESG strategy should also include a detailed plan on how you are going to track and measure the effectiveness of your ESG initiatives. Who is going to be responsible for doing what, what are they supposed to do, and who are they going to report the information to?
Don’t forget to establish a governance structure that will oversee your ESG initiatives, which will ensure transparency and accountability.
Defining ESG Metrics
The most effective way to measure your ESG performance and progress toward goals is to establish key performance indicators, or KPIs. You can use the industry-recognized ESG metrics listed above, such as the CDP score and GRESB score, to help guide you in this regard.
These metrics will also help guide your internal processes, including the tracking and analysis of ESG data so you can identify areas for improvement.
A vital aspect of ESG is transparency, and that includes disclosing these metrics and performance to all stakeholders. Before you actually do so, though, you should develop a detailed plan for disclosure, so that you’re consistent in timing and format, which makes it easier for people to track your progress over time.
Implementing ESG Initiatives
After you have created the framework, goals, strategies and metrics, you can begin to implement ESG initiatives at your company. Remember, these should align with your overall ESG strategy and goals, and should reflect the feelings and thoughts of your stakeholders and the industry at large.
Real estate companies specifically should consider initiatives that work to promote sustainability practices, such as using more sustainable building materials; reduce greenhouse gas emissions, such as using only energy-efficient and/or Energy Star appliances; and enhance transparent financial practices, such as being an open book when it comes to executive board pay, for instance.
These are generic, overarching ESG goals for the real estate industry, but you should also integrate the specific feedback of your unique stakeholders. This will help to further your ESG efforts and ensure that you are as successful as you can be for your stakeholders.
Monitoring and Reporting ESG Progress
ESG isn’t a one-and-done task. It’s always ongoing, always evolving and always changing.
That’s why it’s so important to set up a well-defined and detailed system that can track and monitor your progress and performance on an ongoing basis. You will have regular reporting timeframes, each of which will come with updated goals if need be.
In between those disclosures, you’ll constantly be collecting data, analyzing it and tracking your performance to your updated goals. This will allow you to identify consistent areas for improvement so that you can optimize your ESG initiatives.
Ensuring ROI for ESG Investments
ESG initiatives can be seen as investments to businesses, which means that you should be measuring their return on investment (ROI). To do this, you can use standard financial metrics, such as the revenue growth and/or cost savings that the initiatives were able to bring to your company.
If they’re resulting in negative ROI, your evaluation should include how you can optimize your operations to turn the tides — or whether the ROI will become positive over time.
ROI is an essential aspect of any investment, of course, so it’s important to include it as part of your reporting of ESG initiatives and conversations with stakeholders about it.
The Role of the Board in ESG
Your company’s board of directors will play a critical role in overseeing ESG initiatives and ensuring accountability. After all, the “G” of ESG is governance.
By setting a governance structure in your company to oversee ESG initiatives, it will help you stay accountable and be transparent every step of the way. Board members need to be engaged before the process so you can understand what their ESG priorities and expectations are — all of which should be incorporated into your overall plan.
Building a Data Collection and Analysis Strategy
The nitty-gritty of ESG audits and strategies lies in data collection and analysis. Data, and the analysis of it, is what will tell the story of your progress toward ESG initiatives.
Depending on the size of your company, this could be quite the undertaking. And since you’ll be collecting data on an ongoing basis — and need to analyze it quickly and effectively — you should consider using modern technology tools to make things easier.
There are many data analytics tools today developed just for ESG initiatives that utilize artificial intelligence and machine learning technology to automate many steps of the process. This can help make your entire operation more effective and efficient, while also being more accurate and transparent.
Creating a Culture of Sustainability
ESG initiatives can’t just be handed down from the top of your organization. They’re something they need to permeate the entire culture of your organization.
That’s why best practices include engaging with employees early in the process to understand what their expectations and priorities are. This also helps in gaining buy-in, which will be essential in achieving your goals consistently.
There are many training and education programs available today that can help you promote awareness and knowledge of ESG, which again can help garner that buy-in you’ll need to succeed.
Managing ESG Risks and Opportunities
Again, it’s important to constantly identify and prioritize ESG risks and opportunities that are material to the company’s real estate assets. This will not only help you save money — by potentially avoiding costly fines, for instance — but also will help you make money by capitalizing on opportunities as they present themselves.
Stakeholder Engagement and Communication
Communication is key to successfully engaging with stakeholders. It helps to build trust that you’re doing what you say you’re doing, and that the information you’re reporting is accurate and truthful.
Luckily, there are stakeholder engagement frameworks that you can follow to help you in this regard, such as the AA1000SES.
ESG Performance Evaluation and Improvement
The key to effective ESG in real estate is ensuring that you develop a plan to constantly evaluate ESG performance and progress. Remember that this is an ongoing process that will evolve over time.
Your goals and initiatives — or how your operations need to adjust to meet them — may need to change and evolve over time based on factors such as new regulations, updated frameworks and standards, or new technologies, for example.
By having a solid ESG plan in place, you will be better positioned to meet your ESG goals, which helps to meet the expectations of all your stakeholders in the important areas of the environment, society and governance.
