Integrating ESG in real estate builds sustainable advantage

ESG (Environmental, Social and Governance) standards and considerations have become a centrepiece for the real estate industry, especially for investors involved with real estate as an asset class. This growing relevance stems from both the compliance risks and opportunities for investors.

From a social perspective, ESG in real estate could range from providing affordable housing and remodelling public spaces and public housing to new investments in green buildings. These measures can transform communities and improve well-being.

They also have a huge link to infrastructure and other environmental considerations, such as energy, which is critical for real estate investment.

Overall, stakeholders in this entire ecosystem are placing sustainability considerations at the heart of real estate and infrastructure development, focusing on areas like smart cities that revolutionise transportation, housing, energy, security and tourism.

Read: Having an empowered board crucial to driving the sustainability agenda

The pressure from investors to minimise adverse environmental and social impact while maximising social and environmental benefits and impact has led to a change in investment strategies that ensure that investments in this asset class remain sustainable. Some considerations for building a sustainable advantage in real estate include the following.

An important aspect is for investors and stakeholders to perform scenario planning and climate risk impact assessment across their investment portfolio.

Through this exercise, investors can prepare multiple scenarios (social and climate-related) as applicable to a specific asset or group of assets to assess the adverse impact.

The outcome of this exercise is to enable owners to consider remodelling and other climate-resilient amendments required for the asset or project to guarantee long-term viability. These insights can also be translated into the design phase of real estate projects, including assessing measures such as energy usage, which will result in better urban planning.

Other actions include the reduction of fossil fuels while embracing renewable energy sources with energy efficiency and building sustainable supply chains. Finally, organisations must pay attention to the changing regulations across the real estate industry, ranging from those impacting directly on their projects or how they execute their projects to rules that affect reporting.

For climate risk, organisations should be prepared to communicate the physical and transition climate risks that impact their portfolio using relevant and accurate data.

Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.