Editor’s Note: This article was originally published in the March 2023 issue of the Colorado Real Estate Journal’s Building Dialogue magazine.
In our world that seems myopically focused on jumping from one crisis to next, we often forget how powerful it is to construct something that can endure for generations. When the built environment goes through a much longer timescale, it becomes clear that decisions made now have broad compounding effects. Our evolving approach to design and construction should be rooted in developing new tools to measure our impact to inform a continually improving feedback loop.
Measurement of these impacts have coalesced under the umbrella of “ESG,” which stands for Environmental, Social, and Governance. But why ESG? Though still evolving, the concept is to have a form of disclosure that tracks measured impact with transparency. Organizations have already been facing an increasing obligation to address how they affect the world beyond their primary business function. Per McKinsey, “More than 90% of S&P 500 companies now publish ESG reports in some forms, as do approximately 70% of Russell 1000 companies.” Company reports align with one of the following frameworks established by the Global Reporting Initiative (GRI), International Organization for Standardization (ISO), or the United Nations Sustainable Development Goals (SDGs).
Gensler has been developing an analysis tool that can help building owners, developers, and investors quickly identify property suitability with ESG goals. Similar to our Office-to-Residential conversion tool, the value proposition of the ESG tool is to provide a compatibility score that captures a broad range of data inputs into a number that can be compared across a portfolio of projects. The tool is built to aid in making more informed development decisions, whether that is site selection or project scoping. Our ESG toolkit measures factors such as operational carbon, embodied carbon, community benefit opportunities, biodiversity, occupant well-being, and climate resilience.
Why is ESG the next big thing in real estate?
The built environment accounts for approximately 40% of total greenhouse gas (GHG) output and is a critical player in combating climate change. Cities like Denver are introducing new regulations that require buildings to be built energy efficient and will begin tracking energy usage. This is a significant development in our industry, and it is not unique to municipalities. Public and private companies are beginning to actively measure the carbon and energy impact on their business which will inform their real estate decisions as a tenant or investor.
We have been seeing this firsthand with large corporate tenants making leasing decisions based in part on how a prospective building will align to their ESG goals. Certifications such as LEED and WELL Building have matured to a point where the metrics are understandable and comparable between buildings.
What about society and governance? When COVID-19 led to global shutdowns and quarantine, we witnessed how crisis impacts people differently, the complexities of supply chain, and how the built environment is an intertwined ecosystem — and its health matters! The social and governance components of ESG are considered in aspects like how construction draws from material and energy sources that impact people, buildings are affected by their local social ecosystems, and projects offer opportunities for new places to live, work, or play.
Buildings that can show environmental responsibility and positive impacts in our community will have a competitive advantage among tenants and investors. Contributing to the local community by incorporating affordable housing, public green space, a grocery store, or retail space can grow the overall health of the community, thereby increasing its value, and attracting even more tenants and investors.
In real estate, location matters, and what we learned from the pandemic is that the health and well-being of that location matters as well. In other words, the value of a location is not static; it is an ecosystem that needs to be cared for and maintained by not only the people but also by the buildings they create. The question of ESG is not its relevancy but how we can develop it into the best tool for progress possible. How we measure the more intangible and less direct impacts on society and governance, the S and G of ESG is the next frontier for our industry.
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