Real estate is one of the largest sources of greenhouse gas emissions and embodied carbon in the developed world. So, with good reason, the conversation around the environmental (E) component of ESG within real estate is quite advanced.

The social and governance (S&G) components of ESG, by contrast, have received comparatively little attention until recently. The data landscape for these criteria is less mature and performance standards and key metrics are less widespread and less consistent.

Lauren and Brian introduce the 'stakeholder perspective' as a tool for real estate companies in assessing the most material ways in which their business interacts with S&G considerations. They consider five core stakeholder groups:

1. Employees:

Increasingly, employees cite a company’s mission and/or values as a primary reason they choose to work or stay with a particular employer. Encouraging employee involvement in S&G efforts not only demonstrates a company’s values to employees but empowers them to be directly involved in S&G efforts.

2. Customers:

A growing body of research demonstrates a direct correlation between a building’s characteristics and its tenants’ health. Health and wellness considerations, from COVID-19 safety precautions to the effect of the physical environment on mental health, impact tenants’ decision to occupy space.

3. Local Community:

The local community comprises individuals, organizations, and companies that occupy physical space around a real estate company’s area of business. A company that adopts S&G as a focus will consider local community concerns and desires within its decision-making processes.

4. Contractors and Suppliers:

Companies can advocate for S&G actions with downstream supply chain partners by openly discussing businesses practices and developing principles or rules that are incorporated into contracts or other binding agreements.

5. Capital Partners:

Assessing risk/return profiles, diversification strategies, and business practices is a critical part of developing new investor/investee relationships. Operators that prioritize S&G standards demonstrate responsibility, risk avoidance, and innovation to the capital markets.

By considering its impacts on stakeholders and taking a 'stakeholder perspective' in the development of its S&G goals, a company can align its actions with the areas in which it can have the greatest impact.

By focusing on who is impacted by S&G activities, the stakeholder perspective offers several advantages to operators and investors:

1. Better data collection: With a clearer and more targeted definition of stakeholders, a company can collect better data on how best to serve each group.
2. Addressing S&G ‘blind spots’: By understanding and categorizing stakeholders in a structured manner, the stakeholder perspective helps ensure that S&G impacts on all stakeholders are considered.
3. Embedding S&G in day-to-day operations: By centring stakeholders in S&G thinking, companies can move from having separate, discrete S&G initiatives to embedding S&G in their everyday business operations.

S&G topics are broad, but companies can use the stakeholder approach to focus on meaningful and measurable actions.

Read the full article in AFIRE’s Summit Journal here. If you would like to learn more, please contact Lauren Krause or Brian Biggs.