Not long ago, Environmental, Social and Governance (ESG) was dismissed as superfluous and unnecessary when it came to commercial real estate. More recently, it became a “nice to have.” Today, ESG has become a “must have” and is viewed as a huge opportunity as issues such as climate change pose a real risk to the value of assets of almost every company across the globe.
Since ESG takes into consideration a business’ impact on its operating environment in the investment decision making process alongside other financial motivators,1 businesses must “future-proof” their organizations by analyzing, strategizing, and disclosing their ESG impacts, starting today. Otherwise, they will soon find themselves left behind by others that have embraced the need to develop and execute a clear ESG strategy.
The individual elements of ESG
- Environmental (E) includes the impact an organization has on environmental areas such as energy, greenhouse gas emissions, waste, climate change and resource scarcity.
- Social (S) focuses on how the organization impacts the people it employs as well as the communities which it operates in, including labor rights, land acquisition, workplace/ workforce health and wellness, safety, diversity and community impact.
- Governance (G) examines how the organization governs itself including board structure and composition, executive compensation, business ethics and shareholder rights.
Together, these definitions expand beyond traditional measures of ‘sustainability,’ and the ‘triple bottom line,’ with an increased focus on how these factors contribute to socially responsible investing.
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