What is ESG, and how does it impact the commercial real estate market?

ESG (Environmental, Social and Governance) is a term first used back in 2004 in the Global Compact report, a branch of the United Nations (UN), whose mission is to engage companies and organizations to maintain security, world peace, respect for human and labour rights, care for the environment, and so on. But what only a few know is that this has a direct impact on real estate assets, such as offices, logistics warehouse and malls.

But what exactly is ESG?

Environmental: are the practices of companies and entities focused on the environment. This area includes topics such as global warming, air and water pollution; logging; Waste Management; biodiversity and other diverse environmental care and responsibility issues.

Social refers to companies' social responsibilities and impact on society and the community. Predominantly, its main guidelines are respect for human rights and labourlaws; diversity of gender, race, ethnicity and belief; data privacy; relationship with the community; etc.

Governance: linked to an entity or company's policies, processes, strategies, and administration. The main topics are whistle blowing channels, anti-corruptionpractices, and data transparency, among others. All terms are linked; however, this one, in particular, is what commands the inspection and reporting of sustainable practices by companies.

According to the Global Compact itself, ESG alone represents corporate sustainability.

An example of application in the commercial real estate market is the Parque da Cidade (photo) complex, located in the Chucri Zaidan region in São Paulo, in Brazil. The development has LEED Gold certifications for sustainable construction and LEED Neighborhood, which recognizes properties that meet New Urbanism principles, considering the surroundings and the neighbourhood for smart and sustainable growth.

In the case of Mexico, Reforma 180, located in Mexico City, in the Reforma submarket, is LEED PLATINUM certified, which is the highest recognition granted by the U.S. Green Building Council (USGBC) to sustainable buildings worldwide.

Companies that have goals to be achieved in ESG aspects tend to prioritize workspaces in line with these policies to meet certain requirements, such as reducing greenhouse gas emissions through clean and renewable energy, among other examples.

How vital is ESG?

ESG issues have become essential in risk analysis and investment decisions by banks, international investors and the like. Many companies are looking for commercial assets that have a sustainability certificate, produce clean energy, and reuse water, among other actions that contribute to achieving ESG goals.

"Companies are increasingly migrating to more sustainable spaces and concepts. We see companies much more prepared than people to receive sustainability," said Nico Theodorakis, founding partner and CEO of construction company NOAH, in an interview with SiiLA earlier this year. NOAH is a Brazilian construction company bringing to the real estate market buildings that use engineered wood, known abroad as cross-laminated timber, as the primary raw material. Check out the full interview here.

These goals in retail and e-commerce companies include having their operations less impacting Distribution Centers. For example, Lojas Renner, a large retail company from Brazil, announced that it had reached 100% of corporate energy consumption from low-impact renewable sources, including administrative buildings, DCs and stores, among other initiatives.

Want to know more about the topic and how it impacts the commercial real estate market? Write to and send us your topic suggestion!