Unpacking social metrics in ESG reporting for real estate: Challenges and solutions for fund managers

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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.

In ESG investing, the social dimension often presents unique challenges, especially for real estate fund managers. As the focus on ESG grows with new regulations, so does the need to accurately track, analyze, and report social metrics. However, the inherent complexity of these metrics, coupled with the lack of standardized benchmarks and certifications, poses significant hurdles.

This article explores social metrics critical for real estate ESG reporting, specifically those aligned with frameworks like CSRD, SFDR, GRESB, and GRI, and provides practical solutions for overcoming reporting challenges.

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Social metrics in real estate

Social metrics in real estate ESG reporting encompass various factors impacting the well-being of individuals and communities. These include:

  • Community impact: Contributions to local economies and community engagement initiatives can significantly enhance the social value of real estate investments. By supporting local businesses and participating in community projects, properties become integral parts of their neighborhoods. This creates a positive reputation and can lead to increased demand, higher occupancy rates, and potentially higher property values. Investors can see long-term benefits as properties within vibrant, engaged communities often experience more stable returns.
  • Tenant and occupant health and well-being: Indoor air quality, access to amenities, and safety standards. Properties with high tenant and occupant health standards attract and retain tenants who are more willing to pay a premium, contributing to the overall value of the property. At Scaler, we are experiencing this ourselves as tenants of the Edge Stadium building. The building’s focus on health and well-being is crucial to our culture and aligns with our health and well-being goals, demonstrating the tangible benefits of such environments.
  • Social stability: Investors have the opportunity to target specific market segments that struggle to find suitable real estate, such as social workers in expensive cities. A notable example is the Impact Fund of Bouwinvest, which focuses on adding and preserving affordable care-related homes in the social and low-middle rental segment in the Netherlands. This fund aims to provide housing for groups who find it difficult to secure a home, thereby enhancing social stability and fulfilling a critical societal need.
  • Labor practices: Effective labor practices, including employee diversity, fair wages, and good working conditions, are crucial for fostering a positive and productive workforce. High levels of employee engagement can lead to better property management and maintenance, which in turn enhances tenant satisfaction and property value. Investors benefit from a stable and motivated workforce that ensures the long-term success and sustainability of their real estate assets.
  • Human rights: Policies against discrimination, forced labor, and child labor. Investors can enhance their human rights efforts by aligning with the EU Taxonomy where they must comply with minimum safeguards. This can be achieved by:
    • Policy development: Identifying relevant topics and integrating them into policies based on Regulation requirements.
    • Compliance framework: Documenting due diligence, assessment, and monitoring to provide evidence for assurance and other compliance checks.

These metrics not only influence the social performance of the company itself but also the performance and value of the managed buildings. All real estate assets are, in some way, affected by social factors. Properties are more valuable if surrounded by vibrant communities, with healthy and financially stable occupants, and where they respond to the needs of society. Real estate investments with socially positive attributes can provide performance advantages to investors in several ways, including risk mitigation, value creation, and accountability and compliance.

Challenges in defining and quantifying social metrics

  1. Ambiguity in definition: Social metrics are often abstract and multifaceted, making them hard to define. Unlike environmental metrics, which can be measured in tangible units like carbon emissions, social metrics involve qualitative aspects like community well-being and employee satisfaction.
  2. Data collection: Gathering accurate data from various sources within the company and across managed buildings can be daunting. This includes tenant feedback, community surveys and employee reports.
  3. Lack of benchmarks: Unlike environmental metrics, there are no widely accepted benchmarks for social metrics in real estate. This makes it challenging to gauge performance and set targets.
  4. Absence of certifications: While there are green building certifications like BREEAM, LEED, WELL and Green Star, similar certifications for social metrics are lacking. This gap creates uncertainty about what needs to be included and reported.

Overcoming the challenges: practical solutions

  • Framework Alignment and Standardization.
    • Adopt established frameworks: Utilize frameworks such as the EU CSRD, which has four social topics including own workforce, workers in the value chain, affected communities, and consumers and end-users; GRESB’s stakeholder engagement aspect; the INREV guidelines; and GRI to guide the definition and reporting of social metrics within your organization. Regardless of whether you are in Europe and obliged to report according to these frameworks, working with an established framework is a good starting point and allows you to align with industry best practices, ensure comprehensive reporting, and enhance the credibility and comparability of your social metrics.
    • Social Value Portal: Leverage initiatives like the Social Value Portal, which provides a platform to measure and manage social value. This can help in setting benchmarks and creating a standardized approach to social metrics in real estate.
  • Comprehensive Data Collection and Analysis. Stakeholder engagement:
    • Engage with tenants, employees, and community members to gather qualitative data through surveys, interviews, and feedback mechanisms. A dedication to this sort of in-depth engagement will help you assess the materiality of social measures and guide you in further implementation and strategy, ensuring that your initiatives are both relevant and impactful.
    • Integrated data platform: Employ an ESG data platform that can integrate various data sources, automate data collection, and ensure consistency and accuracy. This reduces manual errors and provides a holistic view of social performance. Opt for a platform capable of ingesting both qualitative and quantitative data, allowing you to maintain an overview without losing the nuance associated with these kinds of metrics. This ensures a comprehensive understanding of your social performance, capturing the full spectrum of stakeholder insights and operational impacts.
  • Benchmarking and Performance Measurement.
    • Internal benchmarks: Establish internal benchmarks by analyzing historical data and setting realistic performance targets. Compare these benchmarks across your own portfolio and with industry peers.
    • Continuous improvement: Implement a continuous improvement cycle where social performance is regularly reviewed, and strategies are adjusted based on feedback and new insights. It’s important to manage expectations regarding the ‘S’ element of ESG. Focus on areas where realistic improvements can be made, such as employee engagement, community impact, and tenant well-being. Other areas, like policies against child labor, are typically maintained rather than improved upon, serving as essential standards that should consistently be upheld. This balanced approach ensures that efforts are both ambitious and practical.
  • Transparent Reporting and Certification
    • Comprehensive reporting: Ensure transparency by providing detailed reports aligned with CSRD guidelines, the social characteristics mentioned in your SFDR templates and the GRESB stakeholder engagement aspect. Use qualitative narratives along with quantitative data to give a complete picture of social performance.
    • Emerging certifications: Stay informed about emerging certifications and standards for social metrics. Engage with initiatives like the Social Value Portal to keep abreast of new developments and integrate best practices.

Conclusion

Navigating the complexities of social metrics in ESG reporting for real estate requires a strategic and methodical approach. By aligning with established frameworks, leveraging an advanced data platform, and engaging with stakeholders, fund managers can overcome the challenges of defining, quantifying, and reporting social metrics. Transparent and standardized reporting not only ensures compliance with regulatory requirements but also enhances the social impact of real estate investments, contributing to sustainable and inclusive communities.

As the industry evolves, proactive management of social metrics will become increasingly critical. Embracing these solutions will position fund managers at the forefront of sustainable investing, driving value for both investors and society at large.

This article was written by Luc van de Boom, Chief Business Officer at Scaler.

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