Phil Winckles at PAI member Matthews & Goodman reflects on ESG and the implications for the property sector:
A cynical friend of mine stopped me in my tracks quite recently when he claimed that “ESG* might be the hottest thing in town, but it’s nothing more than a piece of corporate ‘virtue signalling’”.
He cited two mitigating facts:
• “We’re all battling to fight our way out of a recession and ESG is almost a nice to do, not a must do activity”
• Apple: “... according to CSRHUB**, Apple has a phenomenal 74% rating for Governance but in the UK, they recently paid only £6m tax on sales of over £14bn.
“That just proves that big corporates lip sync to popular tunes”.
I struggled to fault his logic, but I did point out that at least the property sector is trying to meet our respective ESG targets.
Take the ‘E’ for example – Environment. Bearing in mind that the built environment is responsible for 40% of global greenhouse gas emissions, we should be proud of the fact that as a sector, we are actively trying to reduce our carbon footprint by designing, building and managing smart buildings which:
• Are built from renewable materials
• Are powered by renewable energy – from wind turbines on roof tops, to solar panel generation
• Deploy waste management strategies addressing water, ‘trash’ and emissions
• Be it reusing rainwater and introducing micro water treatment plants on site, or implementing refuse separation processes
• Feature roof gardens which act as carbon filters (a tower block in Melbourne has created a glass rooftop which absorbs CO2 generated by the bus terminal on the ground floor)
• Natural ventilation introduced, to reduce dependency on energy consuming climate control systems
• Buildings which self-regulate – altering internal conditions in response to ambient external temperatures and sunlight.
A number of companies are designing and building net-zero buildings which go beyond adopting protocols and processes to redress carbon emissions, reuse waste (eg using waste heat to warm water, which is used to heat the building) and of course, using renewable energy generation (see above) for electricity and running climate control systems. I recently read about the use of fibre optic technology which captured sunlight and used it to light up dark internal stairwells.
As for the ‘S’ in ESG, our sector has been quick to realise the power of technology to continue workflows whilst protecting visitors and occupiers in a post-pandemic world. Witness the adoption of systems such as:
• Physical distancing sensors
• Air quality monitors
• Fever detection technology – combining AI and large crowd scanning dispenses with the need for individual scanning of people entering a building
• Contactless technology – in transit and office areas
• Apps which allow people to order their food (for collection), from their desks.
But the ‘S’ includes much more than that. How good are we as a sector when it comes to community engagement and ‘putting something back’?
Yes, as a sector, we are involved in investing in social and affordable housing but, is that driven by a Victorian-Quaker-like philosophy and culture, or by planning policy and strategic logic – a question not a judgement call.
I see many large property companies have appointed Heads/Directors of Diversity. But how diverse are we as a sector in terms of gender and racial representation at senior levels, as well as academic qualification requirements at entry level. If our sector is in work-in-progress mode, where are we on that journey and how will we know we have arrived? When do you think we will arrive?
Given the fact that we are all staring down an economic barrel and will be for many more months, is it OK to put our ESG ambitions on hold until the years of plenty arrive. Are not many of us (logically) focusing on ‘right-sizing’ and balance sheet issues at the moment, rather than the ESG agenda.
Will shareholders (be they our own or our clients’) hold Boards’ feet to the fire if they miss their ESG targets in the current climate, rather than focus on core business/financial priorities? The wise amongst us will claim we can do both after all, history has shown that we can survive when we adopt what seem like counter intuitive financial strategies – think of the West’s disinvestment in South Africa, in the late 60s/early 70s, for moral reasons.
No mention of ESG can escape the Climate Control juggernaut which underpins this acronym. Despite the country being dominated by COVID, Boris has still found time to launch his Green Industrial Revolution, accelerate behaviour change with his 2030 petrol and diesel car ban and introduce new targets for reducing economy wide gas emissions.
Our smart building innovations (see above) will make a significant contribution to achieving these national ambitions, but more importantly, they will fashion strategies and plans which are being developed. They also represent huge opportunities for all corners of our sector – from new build and development, to retro-fitting, to improving buildings’ carbon footprints, investment strategies, etc.
It is interesting to note that our sector is also involved in improving the resilience of buildings to face some of the effects of climate change - unusual climate events such as inland flooding caused by unseasonal rainfall, coastal flooding caused by hurricanes and storm surges, drought, wildfires, etc.
As we attempt to juggle the multiple pressures we face as companies and as a sector – financial, strategic/ESG, talent husbandry (from recruiting to nurturing, growing and retention), legislative-led change – we have an ally. One which is evolving as rapidly as our markets are. It also has the raw power to invoke profound changes to what we do and how we do it.
That ally is technology. From AI to blockchain: from IoT*** to green mobility in all its guises.
It is the key to the profound changes we face.
*Environment Social Governance
**an international CSR ratings agency
***Internet of Things