Integrating ESG into real estate creates a sustainable advantage

ESG (Environmental, Social and Governance) standards and considerations have become an important part of the real estate industry, especially for investors involved in real estate as an asset class. This growing relevance stems from both compliance risks and opportunities for investors.

From a social perspective, ESG in real estate can range from providing affordable housing and renovating public spaces and public housing to new investments in green buildings. These measures can transform communities and improve well-being.

They also have a huge link to infrastructure and other environmental considerations, such as energy, which are critical to real estate investing.

Overall, stakeholders across this ecosystem are placing sustainability considerations at the heart of real estate and infrastructure development, with a focus on areas like smart cities that are revolutionizing transportation, housing, energy, security and tourism.

Investor pressure to minimize negative environmental and social impacts while maximizing social and environmental benefits and impacts has led to a change in investment strategies that ensure investments in this asset class remain sustainable. Some considerations for building a sustainable advantage in real estate include the following.

An important aspect is for investors and stakeholders to conduct scenario planning and climate risk impact assessments for their investment portfolio.

This exercise allows investors to prepare multiple scenarios (social and climate-related) that apply to a specific asset or group of assets to assess the negative impact.

The outcome of this exercise is to enable owners to consider conversions and other climate-resilient adjustments required to ensure the asset or project’s long-term viability. These insights can also be translated into the design phase of real estate projects, including assessing measures such as energy consumption, which will result in better urban planning.

Other actions include reducing fossil fuels, embracing renewable energy sources with energy efficiency and building sustainable supply chains. Finally, organizations must pay attention to the changing regulations in the real estate industry, ranging from rules that directly affect their projects or the way they execute their projects, to rules that impact reporting.

For climate risks, organizations must be prepared to communicate the physical and transition climate risks impacting their portfolio using relevant and accurate data.

Akinyemi Awodumila is a partner at Deloitte East Africa. He is an author who writes and speaks extensively on business reporting topics.