The role that organizations and investors can play in tackling climate change is in sharp focus.

Carbon neutral companies and sustainable investments are seen more and more as a value driver for the Real Estate industry, whilst technology has propelled many aspects of business and Real Estate to new heights – making them both more accessible, and ensuring that these areas can develop and leverage technology for greater growth.

As buildings are responsible for 40% of the world’s carbon emissions, use 40% of the world’s energy, and consume 30% of world’s available drinking water, more and more investors are concerned with the way business is conducted in Real Estate. Specifically, there is more awareness of the environmental and societal governance of the industry, and of the different levels of sustainability and effectiveness of various sectors and organisations within the Real Estate industry.

Whether via BREEAM and LEEDS certifications, or other programs and certifications, Real Estate businesses are more and more held to higher standards of operations.

One particular program that is growing in popularity – and has immense potential and a unique positioning in the Real Estate industry - is the ESG framework.

This article aims to delve into this subject, providing an overview of ESG criteria and information on how it can be applied to Real Estate investments in Europe and North America, with particular emphasis on the UK and the US.

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What is ESG in Real Estate and what does it stand for?

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ESG is an acronym and stands for Environmental, Social, and Governance. It refers to the sustainability criteria that guide Real Estate businesses, investors, and stakeholders to make conscious decisions about how they invest and do business.

ESG functions and exists in key Real Estate markets (namely, Europe / UK and North America) but doesn’t have a fixed set of objectives and standards like ISO, BREEAM, or LEEDS. Rather, it is a set of criteria that requires critical thinking on behalf of an organization to improve its policies, operations, and core functions. In other words, ESG outlines the key factors and concepts that businesses must focus on when they are looking to make their operations more sustainable and effective.

Real Estate businesses that follow ESG criteria often look at various aspects of each of these categories to understand how to improve certain parts of their businesses. According to the Global Real Estate Sustainability Benchmark (GRESB)—a global firm that assesses ESG frameworks and performance in the Real Estate industry—each of the components of ESG is characterized by several criteria that businesses must focus on.

An additional model which must be highlighted was developed by the United Nations global compact on Principles for Responsible Investment, or UN PRI for short. This model, shown below, highlights additional factors within each of the three pillars of ESG that Real Estate businesses must follow and be cognizant of.

What these models illustrate is that Real Estate companies must look at how each component of their businesses and operations individually impact each of these areas under the ESG categories.

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