Importance of ESG in the real estate sector

by Advance Real Estate 7 de July, 2022 904 Views

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Environment, society, and corporate governance – the so-called ESG principles – are now prioritized for all industries. But in particular, the real estate sector is estimated to be responsible for 40% of carbon emissions¹.

Therefore, implementing sustainable measures and strategies that help mitigate the negative impact on the environment is required.

Importance of ESG in the real estate sector

As we have developed previously, environmental care, social responsibility, and ensuring respect for human rights within organizations are aspects that companies are currently obliged to attend to and monitor and are no longer strictly an added value.

This reality has meant that ESG principles (based on the 17 Sustainable Development Goals² proposed by the UN) are decisive for investment or disinvestment in companies in different industry sectors.

In the real estate market, this phenomenon refers to the Paris Agreement on action against climate change, a document signed in 2015 and that would become the antecedent for the Taxonomy Regulation, a regulation enacted on July 12, 2021.

On the other hand, although the real estate sector indeed is one of the least affected by regulation, it is also true that failure to comply with its standards could make it difficult to obtain financing. In this regard, some European banks have favored implementing a zero carbon business model in the medium term.

Main ESG indicators

ESG indicators are the aspects evaluated by international sustainability, social responsibility, and governance indices. Among the most important, the following stand out:

Ecological footprint.
Carbon footprint.
Water footprint.
Social footprint.

On the other hand, sustainability indices³, composed of listed companies that manage to accredit responsible management in terms of sustainability and corporate governance, represent, together with certifications, the consummation of ESG objectives. Two of the best known are:

Dow Jones Sustainability Index. Commonly identified by its acronym DJSI, it was created with the purpose of recognizing publicly traded companies with the best environmental practices. This evaluation, carried out by the company RobecoSAM, considers around 600 factors, including policies, codes of conduct, and training for equity within companies.
FTSE4Good Index. This assessment was created by the FTSE Russell provider, to which several other indices belong. It evaluates around 300 factors grouped into different themes. It is awarded to companies that carry out solid environmental, social, and corporate governance practices.

How to apply ESG principles to reduce environmental impact?

1. Define the corporate strategy

The company’s ESG principles should correspond to the type of activity within the sector and be congruent with the environmental impact it generates.

In addition, the stakeholders to whom these initiatives are directed (shareholders, customers, collaborators, financial institutions and sector organizations, among others) must be defined in order to establish an assertive and long-term strategy.

2. Placing oneself in the global context

Regulations have emerged around the world to guide industry initiatives in sustainability. Knowing them, understanding these trends, and adopting the criteria related to the context of organizations in Mexico is an important first step for applying ESG principles.

3. Aim for certifications that endorse sustainability, social, and governance principles.

Seeking to apply for LEED⁴ (Leadership in Energy and Environmental Design) and BREEAM⁵ (Building Research Establishment Environmental Assessment Method) certifications or the clean energy certificates⁶ awarded in Mexico is becoming increasingly important.

In terms of Society and Corporate Governance, there are evaluations such as the WELL Certification⁷, which identifies, measures and monitors the impact that buildings have on the health and well-being of their tenants. This is the first certification focused on the comfort and care of people.At Advance Real Estate we support the ESG strategy of Mexican companies through industrial spaces equipped to comply with these principles.

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About us

Advance Real Estate

Advance is a leading company in the acquisition, leasing and operation of industrial and logistics assets, with presence in 12 cities within Mexico and a portfolio of 11.5 million sf of industrial space.

informes@advance-realestate.com

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