Environmental, Social, and Governance (ESG) issues and its variations have been around for a long time, but its importance and urgency have recently elevated within the business community.
Specifically, 2020 brought ESG to the forefront as the pandemic, and climate-related disruptions, along with growing recognition of social inequities, prompted a growing focus on ESG. Businesses began to look at how to run their companies through the ‘ESG lens.’
As PWC put it, “Goodbye theory, hello action!”
ESG represents risks and opportunities that impact a company’s ability to create long-term value, including climate change and resource scarcity; diversity and inclusion; safety issues; data security; board diversity; executive pay, and tax transparency, to name a few.
(As an aside on the climate front, my family had a vacation canceled in August due to COVID-related circumstances with the staff where we were headed. As we gathered to reset and discuss where we could go, our conversation was almost comical. ‘Well, we can’t go the West Coast because of all the fires. And, we can’t go to the East Coast because of all the hurricanes. Where can we go in the middle of the country?’ Cyclical or not, something is changing with our climate, and Lake Michigan is a very nice place to visit in the summer!)
As importantly, the investor community has made ESG another critical filter in determining whether to invest in that company–including real estate companies. One of the largest investors in the world, Blackrock, has taken an evident leadership stands on ESG relative to investing. (Note: Blackrock has $9.5 Trillion of Assets Under Management…yes, Trillion.)
CEO Larry Fink wrote this summer about the historic investment opportunity presented by climate transition and how we are at the beginning of a long but accelerating transition in which sustainability has become a critical factor in determining a company’s long-term value.
“As long term investors, on behalf of our clients, accounting for environmental, social and governance (ESG) risks and opportunities helps us provide sustainable value to our clients.”
In CBRE’s 2021 Global Investor Intentions Survey, relative to real estate, 60 percent of the respondents stated that they have already adopted ESG criteria as part of their investment strategies. Additionally, while pressure is growing on Investors and Owners, we are also starting to hear occupiers discuss ESG.
Blackrock and many other investors hold our customers responsible for their ESG plans before they invest in their companies (our customers). In turn, those customers are talking to us asset owners about how we can help their ESG journey with their occupied space.
So, there are three main reasons we all need to hop on the ESG train now:
- It’s the right thing to do. Why wouldn’t we want to help improve the climate for future generations? Why wouldn’t we want to treat other human beings equally? Why wouldn’t we be transparent about our business practices to our employees and all stakeholders?
- Suppose you can’t get on board with No. 1 above. In that case, your ability to effectively raise capital to run your real estate business is going to increasingly depend on your focus on ESG issues in how you operate your company.
- Increasingly, our customers will demand that building owners help them in their ESG journey and reduce their carbon footprint within their occupied space.
Michael Dardick is the founding partner and CEO of Granite Properties.