Why Should Real Estate Players Adopt ESG?

We all know that scientists have warned us of climate change and depleting resources for many years. A recent global report also noted the world temperature to be 1° higher than the values in just 2 centuries. In addition, the temperature is estimated to rise further by at least 1.5° by 2040. 

Given the landmass and population of the Indian subcontinent, our country ranks high on the ‘would be most affected’ list. Now the actual question is – what should be done that has combated this problem in a lesser time? Environment, Social, and Governance (ESG) strategy implementation is the answer.

In this article, we will explore why the real estate sector should act fast on adopting a nationwide ESG strategy.

Real Estate and ESG

Real estate construction and maintenance produce around 40% carbon emission, making it one of the largest sources of environmental hazards. ESG plays a crucial role in countering this problem and boosting sustainable housing, i.e., the need of the hour. While there have been building codes to implement ESG during construction, the adoption needs a rapid pickup.

Reason for adopting ESG in the real estate industry

After going through the various reports, datasets & our own surveys, we’ve found the following that the following reasons have been driving ESG in the real estate sector:

1) Environmental Impact of Real Estate

Real estate is a carbon-heavy emission industry that has been growing with population, making up for 28% of emissions just from construction materials and equipment. Building sustainable infrastructure with a low carbon footprint becomes a necessity. Since real estate establishments are immovable and stand for decades, the environmental impact of real estate grows over time.

ECG climbs up to the top of the list, especially for commercial real estate that uses power generators, machines, and other high-carbon emission equipment.

2) Net Zero Emission

As per the 2021 Global Status Report for Building and Construction, the goal of achieving carbon neutrality and net-zero emission by 2030 and 2025, respectively, can only be achieved with the help of ESG. However, the report also states that the current pace and efforts are not sufficient.

A special focus is given to the real estate sector since the buildings that would survive till 2050 and beyond have already been built. It could be a cause of concern and a roadblock to achieving net-zero emission if not addressed urgently.

3) Investment in Sustainability

After the 2015 Paris Agreement, the response to climate change has rapidly increased. But if the real estate sector mandates ESG, there will be massive improvements. Investment decisions for sustainability should be the new norm for owning or operating real estate assets.

If it is ignored now, several real estate assets may lag in achieving sustainability goals that would potentially downsize collective global efforts. Besides, ESG integration can also play a vital role in differentiating reputable investors who care about their customers and infrastructure’s health.

4) Value Driving ESG Implementation

Real estate companies implementing ESG into their infrastructure can get green certifications and attract the right type of occupants. Besides, it also helps appreciate the overall price and returns on investment.  Since ESG is driven by the same values, implementing this code or strategy during the construction and maintenance of a real estate infrastructure can be helpful, especially in the long run.

Better decarbonization of buildings also increases their marketability, reduces maintenance costs, and improves occupants’ health.

Paris Agreement 2015: Road To 2030 and 2050

After several reports and record temperatures, many nations have finally come together for the first time to fight climate change. Signed on 12 December 2015, the Paris Agreement legally binds 196 nations to act swiftly on climate change. The goal of this agreement is to reduce or limit global warming to under 2° Celsius by eliminating greenhouse gas emissions. 

The agreement also states that it is now urgent to reach net-carbon neutrality by 2050 to sustain life on Earth for generations to come. By 2030, carbon-neutral solutions must be implemented in sectors accounting for 70% of global emissions, which also include real estate.

All parties also recognized the need to boost awareness and knowledge of climate change and its preventive methods.

ESG in India

Since the Paris Agreement, carbon emissions have fallen below such levels that were last recorded in 2007. However, most of it has been due to the COVID-19 pandemic that halted construction progress across the globe. Once the global markets become fully operational, we may go back to level zero. During the COVID-19 lockdown in 2020, we experienced fresh air, self-cleaning water bodies, and greener surroundings that put everything in perspective. While the change is temporary, a collective movement can help resolve it.

 Since the real estate sector is the biggest contributor to carbon emissions, implementing ESG in the Indian market will only improve it in the future. While there are building codes and laws in place, investors and developers of this sector must aim to make such infrastructures sustainable.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.