The Future of ESG in Commercial Real Estate

What is ESG?

The acronym stands for Environmental, Social, Governance. But what does it mean?

The majority of attention is placed on the “E” because it is tangible. We know what we can do to positively impact the planet and most large companies are working on their plans to achieve a net zero carbon footprint. As extreme weather events and other natural disasters continue to increase in frequency, controlling what we can becomes more important.

“S”, the Social part of ESG, becomes a bit less tangible but it is just as important. Promoting Diversity, Equity and Inclusion (DEI) for our fellow humans through our hiring practices, our vendor selection processes, and the communities we serve helps elevate the lives of everyone and increases overall success.

“G”, referring to Corporate Governance, includes ensuring that the ways we are addressing all aspects of ESG are transparent and fair. There is a duty to abide by corporate governance and to be good stewards of the company’s money (or of the taxpayers’ money if you are a public entity).

Why should Commercial Real Estate investors, owners and managers care about ESG?

There can be several drivers for a company to pay attention to ESG and take a measured approach toward implementing policies that further these causes.

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  • Do your part to increase sustainability and help the environment
  • Comply with new regulations
  • Community involvement
  • Customer loyalty
  • Do your part for diversity and inclusion
  • Public image and reputation

Ultimately, optimizing your operating costs (a.k.a. saving money!) is a key part of ESG outcomes.

What are some aspects of ESG as it relates to Commercial Real Estate?

Environmental Social Governance
Strive for Net Zero Carbon Local community impact Operate in a cost-effective manner
Reduce energy and water consumption Supporting Disadvantaged Business Enterprises (DBEs) Transparency and fairness in business dealings
Increase availability of electric vehicle charging Focusing internally on Diversity, Equity and Inclusion (DEI) Manage risk

How Can Commercial Property Management Software Address These Needs?

Let’s take the topics one at a time.

Environmental

Vendors

  • Track a Carbon Impact Number on how the vendor addresses environmental sustainability.
  • Use local vendors, when possible, to decrease travel time and Greenhouse Gas (GHG) emissions.

Communication

  • Make it easy for anyone to report maintenance issues and quickly route them for resolution. As an example, you can head off excessive water consumption the faster you are able to take care of a bathroom water leak or a damaged sprinkler head.

Equipment Management

  • Preventive maintenance keeps equipment running efficiently, resulting in less energy usage.
  • Track energy efficiency qualifications so you can report on which equipment are certified vs not.
  • Integration with IoT telematics to predict when maintenance is needed and detect emerging efficiency issues.
  • Use local staff Engineers, when possible, to decrease travel time and GHG emissions.

Materials

  • Track usage of environmentally sensitive materials such as brine in areas of potential runoff or refrigerant.
  • Consider environmental impact of different types of materials used during construction and maintenance, such as selecting high-efficiency LED light bulbs over alternatives.

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Social

Vendor Selection

  • Identify and procure vendors that are Local to the property so you can prioritize small businesses in your community.
  • Identify and procure DBE vendors (minority-owned, women-owned, veteran-owned, small business, etc.).
  • Make it easy to send bids to multiple vendors.

Governance

Equipment Management

  • Manage risk of equipment failure and unplanned maintenance through proactive actions such as preventive maintenance and life cycle cost management.
  • Plan for capital expenditures to replace equipment near the end of its useful life or when energy efficiency needs mitigation.

Reporting

  • Trends over time of money spent with DBE or local vendors.
  • Demonstrating transparency and fairness in vendor selection.

Compliance

Audit trail

  • Show that issues were communicated and responded to in a timely manner
  • Labor tracking to demonstrate the actions taken to remediate maintenance or safety issues

Warranty tracking

  • Equipment
  • Parts used

Vendor agreements

  • Work performed by vendors with a guarantee or warranty of workmanship

Insurance

  • Certificate of Insurance on file for tenants
  • Certificate of Insurance on file for vendors
  • Appropriate insurance levels on buildings
  • Track work performed that should be covered under the owner’s insurance or subrogated from another responsible party

Summary

Paying attention to and having a cohesive plan in place for ESG is good for the planet, good for humanity, and good for business. Automate your property operations with Fyxt to achieve your company’s strategic goals in the ever-changing CRE landscape.

Kelley Ernsdorff

With over 25 years’ experience solving business problems relating to strategic asset management, maintenance and supply-chain for asset-intensive customers in both public and private sectors, Kelley is well positioned to lead the Fyxt product team in the areas of Equipment and Asset Management, Vendor Procurement, and ESG.

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