Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
Over the last three years, the profound shifts in perception surrounding environmental and social risks faced by the real estate and construction sectors have become increasingly evident. The impacts of climate change have started to deliver real-world consequences and the imperative to decarbonize the built environment has begun to permeate the policy arena.
Events around the world have focused a spotlight on deep-rooted inequalities that still exist in communities and societies globally. The role of land use policy and the real estate industry in establishing and perpetuating these inequalities is becoming more broadly recognized.
The grouping of Environmental, Social, and Governance (ESG) is not an accident – these broad categories highlight the major risk and opportunity areas for a company seeking to be profitable over the long term. Seeing the investment to manage environmental risks through a social lens provides an opportunity to shift from a risk focus to one of opportunity, driving the most value from the investment and ultimately increasing the possibility of having a successful transition.
What does the S in ESG represent?
The real estate sector has in some part been addressing the E (Environment) in ESG for at least 30 years. Our organization developed BREEAM, the world’s leading science-based suite of validation and certification systems for a sustainable built environment, back in 1990. The environmental impact of buildings has been relatively easy to define because the science has been fairly straightforward and the metrics for measuring environmental performance and impact are generally direct and widely agreed upon.
The S (Social) component veers deeper into human decision-making processes and so promptly becomes far more complex. This category can be broken down into two key aspects:
- How a company interacts with its direct stakeholders – staff, customers, suppliers, and tenants.
- How they contribute to the economic and social success of the communities in which they operate.
At a fundamental level, a company’s ability to operate stems from its compliance with legal requirements. However, reputational issues are critical to a company’s success. Companies that do not successfully manage their relationships with investors, consumers, and the communities they operate in, are more susceptible to facing not only compliance risks but also failing to receive a broader social acceptance.
Investors, owners, governments, and other stakeholders increasingly recognize the need to better understand the social impacts of the built environment. Businesses are increasingly using ESG-centered factors to evaluate how successfully they have introduced sustainability strategies that improve performance and outcomes, manage risks and, ultimately, grow business value. As a result, the consideration of social impacts is now becoming an intrinsic part of decision-making, rather than an optional requirement.
Social impact begins at the organization
Company decision-making and business practices reflect the values of leadership. Companies
that allow negligent business practices including poor labor relations, not paying suppliers fairly,
and inflicting damage on the community they operate in – whether legally or not – present a
higher risk in terms of their ability to generate returns for their owners.
The actions of leadership set the tone for whole organizations. Recognizing that our personal
and professional actions have the power to either perpetuate inequities or create positive
impacts is an important first step. Successful, thoughtful leadership requires listening to and
learning from current stakeholders, as well as seriously considering what voices are not present
in the room that may have a stake in the decisions being made.
The social imperative
For players in the real estate sector, it’s not just about the company’s interactions as an organization but also the social value delivered by the assets that they own and operate. The way places are designed, built, maintained, and managed has direct impacts on jobs and economic growth along with the health and well-being of local residents and communities. These effects, whether positive or negative, are not always equally experienced by all, and they often reflect the broader inequalities present in that community and society.
No company wants to be perceived as delivering negative social value and contributing to inequality; yet it happens often through inertia, indifference, or ignorance rather than intention. Shifting real estate from a contributor to inequality to a socially conscious industry delivering value broadly to the communities in which they operate requires first and foremost an acknowledgment of the structural disparities that deliver inequities.
Measuring social value delivered by assets
As real estate companies ramp up efforts to deliver social value, the need to identify pathways toward quantifying, managing, and improving social value outcomes throughout an asset’s lifecycle also grows. There is currently no consistent framework that provides agreed-upon definitions or methodologies for measuring built environment-related social impacts. This is a notable challenge to be addressed, but it should not stop us from moving forward on the areas that are better understood while these are developed.
Rating systems like BREEAM are increasingly connecting the environmental and social aspects of their systems. We know that strategic frameworks play a significant role in shaping decisions for the built environment around the world, so at BRE, we have pledged to evolve the BREEAM standards to proactively encourage positive social impacts that provide universal and equal access, dignity, and fair treatment to people in addition to addressing and mitigating environmental impacts.
Part of this process is establishing the firm link between social impact and resilience. Asset resilience to physical risk is exceedingly important as the impacts of climate change begin to affect asset value. However, as we’ve seen with social value, no asset is an island. Asset resilience is dependent on the resilience of the surrounding areas: their block, neighborhood, and community.
When the surrounding environment is not resilient, the asset will also inherently suffer in some way. Solutions deployed to make assets more resilient can also be designed to provide a wider community benefit, thereby delivering positive social value that sustains the long-term value and viability of the development. To accomplish this, a ‘positive social value’ should be defined as a key benefit provided by ESG solutions, in addition to physically protecting the asset and ensuring operational continuity.
Ultimately, sustainability is about humankind, the health of our planet, and our ability to create and live in a world that delivers peace and prosperity for all. The major societal challenges encapsulated in the UN Sustainable Development Goals provide a strong framework that real estate experts can align while simultaneously investing in opportunities that deliver financially and manage risks.
If that seems like an abstract goal, too big for one individual or one company to impact, consider the collective impact real estate has had thus far on society and communities. In the US, the real estate industry initially championed practices like redlining that segregated our cities and impacted the generational wealth of people of color. Imagine if our industry set the goal to focus on a positive, constructive end where the measurement of success seriously considers societal gain.
There is already a wealth of information about the issues around social equity in a broader context ready to be uncovered. All those involved in real estate should seek to educate themselves on the basics – the Urban Land Institute’s Social Equity Resource Hub is a great place to begin as it brings together resources from different continents.
The next step is to focus on developing a shared understanding of the metrics for measuring asset performance so we can deliver the most relevant, impactful solutions. At BREEAM, our Social Impact Core Technical Team is continuously reviewing research and working with stakeholders to develop a common framework on Social Values. Through this initiative, we are aiming to enhance our standards and extend the scope of BREEAM assessments to deliver measurable Social Values meaningful to society.
We already accept as an industry that we must invest in decarbonization to manage risk. Investing in solutions that also deliver social value provides a much more compelling business case and helps to deliver the sustainable, just, and resilient world that we all want to live in.
This article was written by Breana Wheeler, Director of Operations – US, at BRE.