Environmental, social, and corporate governance (ESG) is a major focus for real estate, with developers, contractors, and operators subject to increasing scrutiny not only from potential partners, investors and peers
Evidence of ESG performance is now widely requested by local authorities and potential investors. Certain sectors are particularly appealing for investors, including social and affordable housing and retirement communities, as they offer a secure home for patient capital and pleasing optics by tackling social inequality and helping deliver much-needed homes.
Where problematic schemes have always had the potential to impact a brand negatively – and profit margins – issues now bring wider consequences, impacting its ESG scores and lingering long-term.
A less-than-perfect ESG performance will affect future pipelines, so it’s perhaps unsurprising that real estate leaders are investing so heavily in ensuring that governance, social impact and their environmental credentials meet – or exceed – the expected industry standards.
How can businesses measure and improve ESG ratings?
At NHBC, we work closely with developers, investors, contractors and operators to help them meet ESG obligations throughout the entire lifecycle of a scheme, providing expertise, data and insights to help benchmark performance and understand how a scheme compares with similar projects through to technical support to help prevent avoidable issues or delays, and training to fill any skills gaps.
Measuring and improving ESG can be a complex task for any business, with many moving parts, but there are several key areas where gains can be made and looming issues can be mitigated.
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Driving up standards
We work alongside many property industry leaders in the delivery of new schemes – understanding claims data over many years means that we can share unique insight alongside best practices and deep knowledge of building regulations and standards to ensure that quality remains consistently high, supporting contractors to strive for improvement wherever possible.
However, the willingness of the sector to be transparent and to share insights and learnings is hugely valuable as real estate businesses grapple with ESG. Maintaining an open, honest approach will continue to drive up standards, and the sharing of knowledge and expertise, including what has and hasn’t worked, will support the delivery of schemes that are not only financially successful but represent the brand well in the long term.
2. Taking a long term view
Often, the sectors we work across – BTR, social housing, local authority and integrated retirement communities – take a long-term view to development and investment, with funding partners holding homes for many years.
They are invested in the future of the scheme and its continued success. Those schemes built with a focus on quality and sustainability will be fit for the future and able to evolve alongside the market, adopting the inevitable technological advances and building capabilities as time marches on.
3. Building right, the first time
Looking through the ESG lens, schemes must first be built to the right standards. Where errors are made, it is costly not only in financial terms, but subsequent delays could also have implications for relationships with the local community and other stakeholders.
Our team can contribute from the early stages of a project, working closely with the client’s project team to ensure that the building meets the right standards in safety and regulations, helping to prevent costly mistakes down the line.
Any errors or reputational issues impact not only on a project basis but at a brand level. It carries implications for the developer’s overall ESG score and its appeal to future occupiers and potentially risks future investment and opportunities.
4. Measurable outcomes
Data and measurement are essential to achieve reliable, credible ESG reporting – NHBC is fortunate to share unique insights with our developers, contractors and project teams, contributing to performance benchmarking as a project takes shape.
Targets should be set and managed as the development comes to life, with the strongest ESG reports able to demonstrate consistent performance year-on-year, making a persuasive case for future investment – and as a potential partner – while avoiding any allegations of greenwashing.
Regarding ESG, box-ticking is no longer possible – investors and potential partners want to see concrete facts, measurable figures and evidence of continual improvement. Above all, it’s vital to demonstrate a commitment to quality and consistently high standards.
ESG, while it undoubtedly brings complexities, has merely combined three key considerations that have been high on the agenda for real estate businesses for many years – but when approached in the right spirit and equipped with data, the results are often hugely impressive and, for most, will result in new and exciting opportunities for growth.
Tim Reid
Customer relationship director
NHBC
