The Value of ESG Consulting in Modern Real Estate

An overview of environmental and social commitment and corporate governance in real estate

April 20, 2023


As the world continues to embrace sustainability, more and more real estate shareholders are looking to ESG consulting to ensure their projects align with their values. An increasingly common consideration for developers and consumers alike, ESG refers to the three main pillars of sustainable development: environmental commitment, social commitment, and corporate governance. These factors, and other related issues, can have significant impact on a developer’s return on investment (ROI), reputation, and ability to attract and retain tenants. ESG consulting is one way to navigate this burgeoning way of creating greener residential and commercial projects.

What is ESG?

ESG refers to a strategic framework for identifying, evaluating and addressing organizational goals and activities, from the company’s commitment to sustainability, diversity and inclusion, to its overall ethos regarding corporate practices. When it comes to real estate, the ESG framework can be used to assess risks and opportunities created by both market and non-market conditions, as well as to ensure a continually evolving approach in case of future crises. Incorporating ESG into real estate practices can be a complex process, but ESG consulting services can provide the guidance and expertise needed to effectively implement sustainability strategies.

Environmental commitment, the first pillar of ESG, involves reducing the impact of real estate development on the natural environment. This can include utilizing renewable energy sources, implementing green building techniques, and promoting sustainable land use. With many developers taking on a long-term view, the benefits of early action against climate change outweigh its costs.  

One noteworthy aspect of environmental sustainability in the real estate market is the concept of net zero carbon, in which developments effectively offset their own carbon emissions by producing as much renewable energy as they consume using a combination of energy-efficient design and smart energy management systems. Unsurprisingly, net zero carbon developments are gaining popularity, as they provide a solution to the problem of greenhouse gas emissions in the built environment and can help mitigate the effects of climate change. The concept is gaining recognition and support from governments, investors and consumers, making it an appealing and responsible option for developers and owners, who can also benefit financially from lower energy costs, increased property value, and increased market appeal.

Social commitment, the second pillar, examines the impact of real estate projects on communities. Social sustainability can take many forms, addressing issues such as the availability of affordable housing, inclusive and diverse workplaces and communities, and the support of local businesses. It also comprises the health, safety and wellbeing of tenants, including things such as the integration of usable green spaces in residential and commercial projects, touchless building access and better air ventilation and filtration systems, just to name a few. Some green certifications, such as WELL and Fitwel, focus almost entirely on the social pillar of ESG. ESG consulting can assist businesses in navigating the complexities of this pillar and identifying ways to improve their social sustainability efforts.

Corporate governance, the final pillar, prioritizes ethical and transparent management of real estate projects. It plays a crucial role in the sustainable development of real estate by ensuring that companies act ethically and responsibly, balancing their commercial interests with their impact on the environment and society. Following best practices and ensuring that all stakeholders are involved in decision-making can help create long-term value for all. Within certain types of developments, both owners and occupiers have begun to focus on ethical and transparent management, as well as a socially responsible shared culture, demonstrating that effective governance is critical to realizing the full potential of sustainable real estate.

Developers and owners can ensure that all three pillars of ESG are effectively integrated into their operations by utilizing ESG consulting services. This can include assessing and mitigating risks and opportunities, implementing green building techniques, promoting sustainable land use, ensuring ethical and transparent management and creating long-term value for all shareholders. ESG consultants can assist in ensuring that projects are approached with care and with the goal of maximizing the benefits of an ESG strategy.


Why Does ESG Matter in Real Estate?

There are a few factors that contribute to the importance of ESG in the real estate market.

One key reason is that sustainable infrastructure can directly affect a development’s ROI. For example, incorporating sustainability features such as energy-efficient systems, including those used to achieve net zero carbon emissions, and taking water conservation measures can lead to lower operating costs and higher property values. This may result in more affordable rental rates for potential and existing tenants. Additionally, many investors are now considering ESG factors when making investment decisions, and buildings that score well on ESG metrics may be more attractive to these investors, especially as awareness of climate change continues to increase. As the importance of ESG as a development factor has grown, so has the demand for ESG consulting, which seeks to assist investors and developers in going green with their projects.

Another important reason for ESG to be at the forefront of any developer’s mind is that it can help to build a positive reputation. Developing buildings that are environmentally friendly and socially responsible can enhance a developer’s reputation as a leader in the industry, which can attract new business and investment and inspire peers to follow suit. Furthermore, tenants and buyers are increasingly looking for buildings that have been certified as sustainable, and obtaining certifications can help differentiate a building and make it more attractive to potential tenants.

Sustainability certifications, such as LEED® (Leadership in Energy and Environmental Design) and WELL Building Standard® are also important considerations for developers, owners and tenants. These certifications provide a framework for sustainable development and can help ensure that a building is designed and operated in an environmentally friendly and healthy way. Additionally, buildings that have received green certifications may be eligible for financial incentives, depending on location.

LEED is a globally recognized green building certification program that assesses a building’s environmental performance. It establishes a framework for designing, constructing and operating sustainable buildings, with an emphasis on energy efficiency, water use reduction, material selection, indoor environmental quality, and design innovation. Lowering operating costs, improving employee satisfaction and productivity, and increasing property value are all benefits of obtaining a LEED certification, which can be obtained at four levels (Certified, Silver, Gold and Platinum) based on the number of points a development achieves.

WELL is a performance-based certification program that focuses on the health and wellness of building occupants, closely associated with the social commitment pillar of ESG. WELL is based on seven categories of building performance: air quality, water quality, light and acoustics, nourishment, comfort, mind and physical fitness. A building that achieves WELL certification is designed to promote health and wellness while also providing occupants with a safe and healthy environment. This can result in increased employee productivity and satisfaction, as well as better building performance and property value.

By providing knowledge and direction in sustainable development and building practices, ESG consulting can play a significant role in assisting businesses in earning green certifications. ESG consultants can provide support in areas such as energy efficiency, materials selection, water conservation, indoor air quality and other key factors that contribute to a building’s environmental performance. They can also help companies understand the criteria and scoring systems used in green certifications, and work with them to develop strategies to optimize their projects’ scores.

Yet another benefit of ESG implementation is that it plays a positive role in tenant retention. As knowledge of sustainability increases, tenants are increasingly looking for buildings that are sustainable and healthy, and buildings that score well on ESG metrics may be more appealing. This is especially true for companies in the technology and finance sectors, where a strong ESG reputation is quickly becoming an important part of brand identity. Landlords can not only attract and retain tenants by prioritizing ESG and incorporating sustainable development practices into their operations, but they can also improve their reputation as responsible and forward-thinking organizations, thereby increasing trust and credibility. Furthermore, as previously stated, buildings designed with ESG in mind may have lower operating costs, which can assist in keeping rents low and making the building more affordable for tenants.

How Can ESG Consulting Help?

Given the numerous factors at play when adopting or transitioning to ESG practices, expert guidance can help ensure a smoother process. ESG consulting can provide invaluable support to developers and investors as they navigate the complexities of sustainability and ensure that their projects meet the highest standards for both internal and external stakeholders. ESG consultants can assist investors in identifying opportunities for green building techniques, renewable energy solutions, and sustainable land use in order for investors to reduce their environmental impact while improving their social and corporate governance practices.

ESG consulting, in addition to providing guidance, can help investors stand out in a crowded market. As the demand for sustainable development in real estate grows, ESG will remain a critical consideration for the industry. Properties that prioritize ESG principles and sustainable infrastructure tend to have lower operating costs, better tenant retention and higher resale value, resulting in a higher ROI. ESG factors also make real estate investments more attractive to investors, as they are less likely to be impacted by environmental and social risks and are better positioned for long-term success. Investing in properties with a strong ESG profile and sustainable infrastructure can provide a combination of financial returns and environmental and social benefits. By prioritizing ESG, investors can differentiate themselves, improve profitability, and attract and retain investors and tenants.

Contact our ESG experts today to learn more about what they can do for your projects.