Governance in the real estate sector  

Real estate (RE), like many sectors today, is likelyexperiencing increased stakeholder pressure to addressenvironmental, social and governance (ESG) matters. Butwhen it comes to the governance component of ESGmanagement, RE companies could face a number of uniquechallenges. Given the variety of stakeholders and RE’s uniquepositioning in both the business-to-business (B2B) andbusiness-to-consumer (B2C) arenas, RE firms should work tostrike a balance between stakeholder expectations andbusiness objectives.

Various factors, such as: a regulated ecosystem, dependencyon public sector authorities, increased impact oncommunities, multi-entity holding structures and theircomplex management—and more—can make developing andimplementing environmental and social policies a complicatedendeavor for RE companies. For example, waste treatmentand disposal at construction sites may need to be manageddifferently in various geographies due to differing regulationsand varying stakeholder expectations. Or labor relations andhuman rights may have a high level of variance in multi-siteenvironments due to disparate human capital and retentionpractices.

This unique multi-stakeholder ecosystem can hold increasedpotential for both positive and negative impacts—and mayrequire not only effective governance but a mature anddeveloped capability to sense stakeholders and their needs.To do this, RE companies should build an ESG governanceframework with trust at its center that can help them identifyand address both the risks and opportunities that ESG couldpresent.

As part of this framework, RE companies should considersome of the most pressing ESG trends within the RE sector.

These may include:

Green construction and eco-efficiency: Design andconstruction that can help minimizing the negativeenvironmental impact, including across supply chains andthe eco-efficiency of buildings.
Public affairs: The RE sector’s increased interaction withboth public and government institutions may requirespecific focus on the level of engagement andcommunication.
Bilateral community relations: RE companies shouldengage with local communities at the earliest stages ofdesign and construction to help minimize some of thenegative impacts and disruptions as well as address therole RE companies can play in building communities.
Accessibility: As one of enablers of buildings andinfrastructure, RE should help to make equitable facilitiesaccessible to all.
Local economy: A sustainable supply chain can be adifferentiator among RE players; promoting local partnerscan create a positive impact on both the environment andthe community.
Employee and buildings safety: RE companies shouldwork to ensure the safety of employees and public duringconstruction phases and as an integral quality ofcompleted assets.
Labor conditions and human rights: As a major employerand dealing with numerous social issues, the RE sector ismay be in a position to respond address to labor andhuman rights pressures.
Climate resilience: RE players should develop ability toanticipate, prepare for, and respond to the impacts,disruptions, and transition risks associated with climatechange. Due to a high vulnerability of both employees andusers to various climate related risks (such as temperaturerise, see level sire, flooding, and other.

Real estate ESG governance framework

Building a sustainable and trustworthy real estate ecosystem

ESG maturity model

Each major pillar of the framework is identified by the related maturity level of ESG governance. 

Compliant  - Meets different ESG regulation requirements, manages reporting related relevant data timely and accurately reports on required topics

Enhanced  - Accelerates ESG data, metrics and KPIs in defined business aspects and regularly includes ESG considerations in decision making processes.

Transformed - Invests in ESG as a competitive advantage and brand differentiator to support business growth. ESG is an integral part of doing business.

Successful management of these ESG trends can helpimprove trust among relevant stakeholders and given thesetrends can present both risks and opportunities, they shouldfrequently appear on C-suite and board agendas. Boardsshould also seek out leaders with stakeholder relationsmanagement capabilities. By incorporating stakeholderrelations into enterprise risk management and businessstrategy, organizations create a foundation for a company’sgovernance of environmental and social initiatives.

Despite the complex and multi-dimensional matters the REsector may face in fulfilling such ESG targets as outlined bythe United Nations Sustainable Development Goals, the timeto act is now. Boards and the C-suite should have a duty tomanage the risks associated with ESG and developgovernance Key Performance Indicators (KPIs) that can helpreassure stakeholders that ESG efforts are beingimplemented and measured. With a marketplace increasingawareness of ESG, strategies that incorporate environmentaland social matters with concomitant governance not only canhelp RE companies meet their business goals but alsoprovide them with competitive advantage.