In recent years, environmental, social, and governance (ESG) investing in the real estate space has increased significantly. Major world events, such as the pandemic and climate-related disruption, along with a growing recognition of social inequity, have prompted investors to adopt a more robust approach to sustainability-related risks.
With the ESG agenda underpinning the future of our industry, many have been left scratching their heads about where to begin in tackling this vast and varied area. However, those who prioritise ESG initiatives can expect great benefits, from higher rent, tax credits, and incentives to an overall higher market value of their real estate investments.
In collaboration with our partner Yardi, one of the world’s leading property management software solutions, we’ve put together this summary of some of the most important ESG considerations for the real estate industry and the latest trends, innovations, and regulatory requirements affecting property stakeholders. Yardi is leading the way in this area and has just been awarded an ENERGY STAR Partner of the Year Sustained Excellence Award for the fifth year in a row.
In 2019, Yardi reinforced and extended its commitment to improving the real estate industry’s sustainability performance by becoming one of just nine sustainability consultants and solution providers in GRESB’s Global Partner program. GRESB is widely considered the global ESG benchmark for the industry.
So what are the big issues the industry is facing in relation to the ESG agenda?
Access to Centralised Data
Data is key in monitoring and evaluating asset-level ESG performance. However, without a connected technology solution, property owners and managers cannot effectively act on their ESG mandates. Those who invest in property technology to support their ESG mission will be better positioned to thrive in a dynamic regulatory and capital environment.
Asset-level data is often disparate and typically found in varying formats. This means that even the task of consolidating the information can be one of the biggest hurdles companies face. Having a centralised and connected platform allows organisations to aggregate the outputs of each of their assets up to the company level so that they can effectively measure, report, and act on ESG initiatives.
Randy Moss, Manager at Yardi, highlights: “The value of bringing all ESG data into a single platform provides efficiencies for ESG reporting. Having all this data in one place also permits building owners to leverage the data for additional purposes such as efficiency analysis, project results, and prioritisation of investment.”
The Yardi Pulse Suite allows asset owners to benchmark and optimise their utility spend and to use automated solutions to manage their costs, consumption, and reporting. The ESG offering includes green energy procurement, 100% whole-building energy, water and waste data aggregation, reporting to ENERGY STAR and GRESB, and products to improve energy efficiency and reduce energy usage in buildings.
Combining Yardi ESG into a single connected property management solution provides owners and managers with a comprehensive approach to energy management that streamlines processes and reduces costs.
Meeting ESG Benchmarks
In 2022, around 1,820 property companies, real estate investment trusts (REITs), funds, and developers participated in the GRESB Real Estate Assessment, representing more than 150,000 assets across 66 countries. The GRESB Real Estate Assessment underpins the investor-driven global ESG benchmark and reporting framework for listed property companies, private property funds, developers, and investors that invest directly in real estate.
In its role with GRESB, Yardi will help members to complete sustainability assessments, manage ESG data, and advance ESG performance. GRESB participants can use Yardi’s energy solutions to drive actionable environmental, financial, and operational insights into their real estate portfolios. This partnership will allow real estate managers access to highly relevant and validated ESG data and powerful analytical tools to benchmark ESG performance, identify areas for improvement, and engage with investors.
As the focus on ESG strengthens, technology will play a profound role in creating significant and long-lasting changes in the industry’s behaviours and practices by enhancing the collection and reporting of ESG data and ensuring that it meets the benchmarks being set at a company, industry, and institutional level.
Tightening Regulatory Requirements
The Securities and Exchange Commission (SEC) released new rules in April of this year requiring public companies to disclose a host of climate-related information in their public filings. The information organisations will be required to disclose includes the greenhouse gas emissions generated by assets owned, managed, or financed by that company.
These disclosures will heavily impact real estate, as nearly 40% of global carbon emissions come from the real estate sector.
Alongside the SEC’s new rules, numerous other new and pending regulations have many businesses racing to gain a basic understanding of the net-zero carbon reporting requirements needed to measure their progress toward imposed 2030 and 2050 emission targets.
This evolving landscape has been fueled by public and political pressure, with ESG issues continuing to dominate the property industry agenda in 2023. Real estate investors and lenders alike are concentrating on the ever-growing ESG-focused legislation expected to be implemented over the coming months and years.
Since real estate portfolios today often have international investors, regulations around the world are impacting access to capital. Concerns of future regulations are influencing today’s investors, who are now routinely requiring ESG reporting before making new investments in real estate.
The days when real estate investors and lenders sought and appraised real estate assets solely based on their environmental credentials are behind us. The pandemic has left an indelible mark on the real estate sector, pushing the social and governance components of ESG to the fore and driving demand for real estate assets that can demonstrate compliance with all three of the environmental, social, and governance limbs.
Investors and lenders will need to analyse the credentials of their investments through an ESG lens, with the availability and quality of ESG-related disclosures becoming critical to their decision-making.
Yardi uses a tiered approach to automate the time-consuming aggregation, analysis, and reporting of various ESG data points. It achieves this by gathering the data from sources such as utility invoices and providers, meter systems at the property, and resident and tenant billing, among others.
Net Zero Is the New Normal
With operational emissions—the energy used to heat, cool, and light buildings—accounting for 28% of all global carbon emissions, and embodied emissions (materials and construction processes during the entire building life cycle) generating a further 11%, pressure on building owners, operators, and occupants to reduce their carbon footprint is growing.
While carbon reduction efforts may not necessarily generate higher investment returns, they will play a prominent role in preserving asset value as occupiers increasingly shy away from properties with subpar environmental performance. As occupiers and investors are drawn to more sustainable properties, these assets will be worth more. Increasingly, investors are formally including carbon neutrality objectives in their new investment strategies.
As this drive for net zero increases, greater emphasis is being put on the technology that supports its delivery. Additionally, combining ESG data with other operational data delivers actionable insights and tangible results.
Data and data analysis are important ingredients for any asset manager. By gathering all the required real estate information in one platform and making it easily accessible, real estate professionals can contribute to a properly functioning portfolio and, more importantly, a more efficient and effective real estate market. With more publicly available information on key industry ESG data comes better analysis and more informed decisions on the sustainability issues facing the real estate industry.
By combining all asset data into one integrated platform, you can gain complete insight into the performance of your portfolio. This creates better opportunities to generate higher income, control costs, and balance risks.
In 2019, Yardi launched its Elevate Suite, which provides in-depth operational data and predictive insights along with recommended actions to elevate asset performance by lowering costs, balancing risk, and increasing revenue. The Yardi Elevate Suite has been designed specifically with CEOs, COOs, asset managers, and other operational managers in mind. More robust insights, more accurate forecasting, and improved project tracking will give your team the confidence they need to make stronger business decisions, particularly around ESG matters, with the reduced costs and risks that those decisions entail.
Learn More About ESG or Get Started With Yardi
ESG is here to stay and will increasingly shape and influence real estate valuation, and therefore real estate investment, as investors increasingly appreciate the necessity of allocating their commitments under this banner. ESG considerations will continue to play a greater role in every part of the property life cycle.
If you’d like to hear how REdirect can help you get started with Yardi or with any other aspect of leveraging your technology to support your ESG goals, please get in touch at any time.