If the big topic of the year in real estate has been hybrid working, a close second has been ESG and all of its subcategories. For those not aware, ESG is Environmental, Social, and Governance. As an area, it provides a lens that companies can use to evaluate their actions that impact the broader world. Historically, Real Estate is most commonly looked at within the Environmental (aka Sustainability) bucket.
The two worlds of Real Estate fit into ESG in two very different ways. In Commercial Real Estate, there is a need to build sustainable communities with high walkability scores, low energy consumption, good air quality, and high level of work/live/play balance. In Corporate Real Estate, the need is to create workplaces that are energy efficient, have good air quality, and are sized to the needs of the people using the space. The single biggest area where Commercial/Corporate Real Estate can fall down on ESG goals is by having too much space or the wrong types of space.
It is easy to focus on Real Estate when it comes to ESG. Drive down any city or town and you see all the buildings that are used 8 to 5 on Mondays to Fridays. It seems like there are opportunities for improvement. But the reality can be deceptive because so much of it comes down to building use. Efficiently designed and utilized buildings that offer employees short commutes or public transport options can have surprisingly low carbon footprints. But if a space is consistently only 30% occupied, requires an average commute of over an hour, and has no public transport options the result is very different.
ESG comes down to processes and outcomes. It requires a critical look at which spaces perform well and which can be most improved. Where improvement is needed, it is important to evaluate options to come up with the right long-term approach. Yes, reducing water usage at the tap is important, but a bigger result comes from having the building in a better place and appropriately sized.