Environmental, Social, and Governance (ESG) credentials – increasingly a must-have for investors, employees, and consumers – have instigated significant changes in corporate real estate (CRE). This shift has led to the transformation of office design, maintenance, and repurposing, necessitating a rapid adaptation of CRE strategies, and creating challenges for facilities management (FM). It's not just about meeting ESG standards, but also about developing efficient ways to produce the relevant data to fulfill these demands.
Facilities managers are thus now stepping into the role of 'proactive risk mitigators', playing a pivotal part in strategic CRE objectives. These objectives encompass operating profit, cost reduction, digitalization, Net Zero targets, employee engagement, and future-of-work goals, all of which are influenced by ESG factors. Yet despite increasingly widespread ESG awareness, there is still a lack of clarity regarding how facilities managers can provide reliable ESG performance data.
However, this also presents an exciting opportunity for facilities management. By proactively embracing and promoting ESG-focused solutions, facilities managers can convert these challenges into strategic opportunities, thus playing a vital role in compliance, talent management, employee wellness, performance, and operational profit.
The Linked Trio
ESG criteria are interconnected; for instance, workspace design changes could enhance energy efficiency, but impact team collaboration. Yet among these, the environmental factors are where facilities managers can add significant value, influencing not only the raw asset worth but also operational profit and shareholder returns. This area is also particularly crucial for workspace management within broader facilities management goals.
In terms of corporate real estate management, environmental factors in ESG motivate CRE strategists through potential for top-line growth and cost reduction, as strong environmental propositions can tap into new markets and reduce operating expenses. They also enhance productivity by attracting and retaining talented teams united by shared purpose, indirectly boosting shareholder value.
Regulators, CRE owners, tenants, and investors are increasingly focusing on environmental factors too. Regulators are keen on reducing workspace contributions to climate risk, while CRE owners are under pressure to meet sustainability targets. Tenants prefer buildings aligned with their ESG commitments, and investors are becoming more selective about CRE assets, factoring in reputation and liability. Therefore, implementing an ESG-centric facilities management approach is both a logical and strategic move, particularly when integrated with the company’s CRE strategy.
Three Steps to Success
Integrating ESG into the CRE strategy to maximize the opportunities it presents starts with building an ESG baseline. Establishing this baseline involves understanding the mandatory and optional aspects, selecting reliable reporting frameworks, determining the appropriate ESG scorecard, and validating your ESG data with trusted benchmarks. The following three steps will pave the way for productive discussions with ESG stakeholders about the practicalities of collecting the right data.
1. Understand Your ESG Obligations
Understanding your ESG obligations is key. While ESG reporting is still voluntary in some areas, mandatory regulations are quickly expanding in others. This extension not only widens ESG's influence but also presents opportunities for early adopters who employ smart monitoring tools to align with sustainability requirements. Existing reporting frameworks, such as TCFD recommendations, form the basis for these evolving regulations, minimizing the need for a complete overhaul and allowing for optimization of current practices.
Regardless of whether ESG regulations directly apply to you, investor expectations for robust ESG disclosures make it advantageous to stay ahead. While ESG reporting is not universally mandatory as of 2023, certain regulations necessitate specific disclosures. Proactively preparing for these requirements provides a foundation for future ESG compliance.
2. Choose an ESG Reporting Framework
Selecting the right ESG reporting framework for your organization is a critical step in establishing your ESG baseline. It's important to remember that these frameworks are not static but constantly evolving to reflect changing norms and expectations. Moreover, the decision should consider mandatory versus voluntary reporting requirements, your unique ESG objectives, and stakeholder preferences.
Two primary types of guidance structures exist in ESG reporting: standards and frameworks. Standards provide specific, detailed instructions on what ESG aspects to report, while frameworks offer broader, principle-based guidance on what to report and how to structure these reports. Both forms can be useful in developing your ESG reporting process, depending on your specific needs and context.
Among the most widely recognized ESG reporting standards and frameworks are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD), and the Carbon Disclosure Project (CDP). There is also the United Nations’ Sustainable Development Goals (SDGs), a collection of 17 goals adopted by the UN member states committed to the 2030 Agenda for Sustainable Development.
Choosing a framework isn't a one-size-fits-all scenario. Each organization has unique factors to consider. For instance, your geographical location might make certain frameworks more appropriate than others. In some cases, a hybrid approach utilizing elements from multiple frameworks might be the best fit. Ultimately, the chosen framework should align with your organization's ESG goals, meet mandatory requirements where applicable, and effectively communicate your ESG progress to stakeholders.
3. Building Your ESG Scorecard
Building your ESG scorecard is a critical step that requires consideration of both ESG disclosure obligations and strategic goals. ESG scorecards vary, but typically align with the ISS ESG Corporate Rating methodology, which intersects multiple ESG performance requirements.
Having an ESG scorecard is crucial for several reasons. It helps track and monitor key 'E' factors throughout workspaces, provides an easy way to showcase ESG credentials to various stakeholders, and serves as a single source of truth for aligning your ESG change committee around evolving goals.
A Data-Driven Transformation
The integration of ESG factors into CRE strategy has significant potential for value creation, but this transformation fundamentally relies on having the right data. For example, IoT-based workplace analytics, workspace planning simulations, indoor air quality monitoring, energy savings estimation, detailed energy reporting, carbon reduction pathways, and AI-based 24/7 anomaly detection are all vital elements of a data-driven approach. Therefore, comprehensive FM data collection is essential, which has been simplified and amplified by technological advancements.
Its scalable, cost-effective solutions facilitate smart ESG workplace monitoring, enhanced employee wellbeing and productivity, and energy efficiency, ultimately improving the return on investment of CRE. This all-encompassing solution includes workplace experience, workplace management, workplace analytics, and maintenance and energy management, offering a holistic approach to managing your workspace.
Achieving ESG and CRE goals becomes more accessible when the necessary data is effectively collected, analyzed, and reported. Facilities management is thus an important foundation for delivering these objectives. By adopting such an approach, businesses stand to gain a range of benefits, including sustainable profitability and company growth, as well as enhanced regulatory compliance, improved talent acquisition and retention, increased employee wellness and performance, and optimized operational profit. This underlines the inextricable link between facilities management, ESG, CRE – and success.