Commercial real estate investors have rapidly increased the funds dedicated to ESG – or Environmental, Social, and Governance – initiatives over the last decade, and with this has come a proliferation of ESG reporting.
ESG reporting aims to do for environmental and social issues what financial reporting has done for transparency on the traditional ‘business side’ of companies. By reporting systematically on the state of affairs across business activities, financial reporting allows a company to see where it is doing well and where it needs to improve. It also exposes these findings to third parties, like investors, regulators, and the public, making it more likely that companies will act to resolve poor outcomes.
ESG reporting, today
ESG reporting is in its infancy today compared to financial reporting. Many ESG reports still do more anecdotal storytelling than systematic reporting across a set of consistent indicators. Some REITs are just beginning to create a strategy for reporting with a focus on energy and water efficiencies and green building materials as a proxy for the “E” in ESG or its environmental impacts.
Social impact data is complex, and it’s much harder to quantify than environmental data. The “S” in ESG remains more elusive with firms left wondering what to measure – let alone how. However, that is changing fast, as is the cost of not doing ESG reporting or not having a credible plan for becoming more sustainable.
Many banks, lenders, investors, and asset managers are incorporating ESG considerations in core financial decision-making, resulting in penalties for companies that aren’t keeping up. The SEC’s recently announced proposal on requiring reporting on climate risk and GHG emissions impacts has only increased the potential costs of ignoring these locational risks in investment decisions.
The definition of sustainability is still big and widely varies, but increasingly there is consensus that it must include both environmental and social concerns. It can be difficult to find readily available insights on the physical risks of climate change and the economic and social transitional risks of neighborhood shifts over time.
Yet, not understanding the impact of the combination of these risks across a portfolio, can mean mispricing assets, misjudging disposition choices, and missing major opportunities.
Getting started with ESG reporting
Local Logic’s location insights allow investors and companies occupying real estate to understand the environmental and social impacts and risk of location beyond the sustainable materials and mechanical systems within a building. We have climate risk data available via our partnership with ClimateCheck, examine the Scope 3 emissions impacts of location, and measure critical pieces of the GRESB reporting framework, including walkability, affordable housing, and livability.
We understand it can be daunting to begin reporting on ESG and time-consuming to quantify the impacts of these factors on a portfolio of assets. Our standardized location intelligence provides consistent measurements for ESG reporting.