ESG-reporting: What is it, and to whom does it apply?
March 11, 2023
ESG is an increasingly relevant acronym within the commercial real estate industry. But what does ESG-reporting exactly entail, and how does it affect property companies? Varig’s sustainability director Jonas Haugan shares his input.
Building physicist and the head of Varig’s sustainability research department Jonas Haugan is convinced working with and reporting on ESG is something all stakeholders in the real estate industry need to stay on top of going forward.
“Because investors and clients request transparency on sustainability, disclosing ESG-performance is becoming increasingly important for property companies. ESG is key for investors’ decision-making process, as it helps compare assets and companies and reveal potential risks tied to sustainability, or the lack thereof,” says Haugan.
But what is ESG?
“ESG is short for Environmental, Social, Governance. It is a reporting framework that discloses company performances within key fields related to sustainability. It has replaced CSR (corporate social responsibility), as the former didn’t address especially environmental factors sufficiently.”
Haugan explains that ESG is not about a final destination, but about focusing on important areas and to demonstrate continuous improvements. For the betterment of the planet and its peoples.
“The market and regulatory framework are constantly evolving. And the reporting demands evolve correspondingly. As such, ESG-reporting and its three pillars are also constantly evolving. The pillars are interconnected and must be integrated in long-term strategies.”
The three pillars of ESG:
The environmental pilar focuses on the company’s impact on the planet. To combat climate change and preserve nature, environmentally conscious companies are taking steps to reduce their use of resources, reduce their emissions and manage environmental risks connected to their operations. As environmental issues have grown key to most businesses, it is more important than ever to demonstrate to investors that your assets are as green as possible.
The social pillar examines the company’s social, cultural and human factors, securing diversity, inclusion and employee engagement.
The governance pilar mainly reflects how the company is run. Does one have wholesome structures, from owners to employees? Does one have systems to manage risks such as bribes, corruption or lobbying? Good routines and clear responsibilities throughout the company is key to ensure governing structures support wholesome operations.
Increasing reporting demands
Disclosing and reporting ESG-factors are becoming the norm in the real estate industry, also outside the EU, according to Haugan.
“For listed companies it is also often mandatory. At the same time, a plethora of different reporting schemes is in use,” he says. And presents some of the most prominent schemes within the industry:
- Global Real Estate Sustainability (GRESB)
- European Public Real Estate (EPRA)
- Carbon Risk Real Estate Monitor (CRREM)
- Global Reporting Initiative (GRI)
- Principles for Responsible Investment (PRI)
- Task Force on Climate-related Financial Disclosures (TCFD)
- Non-Financial Disclosure Regulations (NFDR)
EU-taxonomy sets new standard
The EU-taxonomy has, since its roll-out began on January 1st, 2022, had significant impact on what property companies need to report on. And focus areas for sustainability action.
“The full scope of the taxonomy is yet to be revealed. For now, two out of its six environmental objectives have been published. The remaining four is, however, expected to be published shortly,” Haugan says.
The six environmental objectives:
- Climate change mitigation (published)
- Climate change adaptation (published)
- The sustainable use and protection of water and marine resources
- The transition to a circular economy
- Pollution prevention and control
- The protection and restoration of biodiversity and ecosystems
Haugan adds that reporting and acting in accordance with the taxonomy has already proven to be effective in risk mitigation and gaining competitive advantages for property companies.
“For those taking proper action the EU-taxonomy and ESG-reporting has helped drive positive effect on valuations and financing. Because this regulatory framework is becoming increasingly important, more and more companies take to positive sustainability action,” he says.
How to start with ESG and ESG-reporting?
According to Haugan, efficient data capture and management is a key to get off to a good start.
“The earlier, the better. For many, this is the tricky part though. Particularly in the real estate industry, which comprises large and complex data sets. We have therefore developed a software to make it a lot easier to get on top of environmental performances and report one’s status and progress to meet the increasing regulatory and financial demands. Our automated data capture significantly reduces operating costs, but perhaps most importantly saves companies the time needed to ensure data accuracy. In addition, our automated reporting feature allows you to generate ready-made quarterly and annual sustainability reports with just a few clicks,” Haugan says.Book a free demo