ESG: Social Good for the Real Estate Industry

Frequently Asked Questions about ESG

• How are ESG scores calculated?

  Despite being hugely important, there is no universal standard for measuring ESG compliance. However, there are a number of trustworthy ways that a company may assess its ESG scores. ESG scores come in a variety of forms, from ESG ratings to ESG benchmarking, with many different research houses (such as Bloomberg, Refinitiv, and Savills) offering in-depth reports based on the results of in-depth surveys, assessments, and site visits. Some scores can even be self-assessed using benchmarking survey tools.

  In general, these results are scored using a star system, with the more stars that a company has, the more ESG compliant it is. However, different companies pay attention to different metrics, and it’s very important to remember that there is currently no universal taxonomy for assessing ESG compliance.

• Are there standard ESG metrics?

  Although there are no uniform standards, it doesn’t mean that ESG scores hold no value. Experts in the field have compared ESG scoring to blockchain: it’s vastly important but with no global standard as of yet. However, many research houses and assessment tools rely on a similar methodology, often based around an in-depth questionnaire, which is often based on other standards from similar industries. For example, some ratings are calculated using EU regulations, or the World Building Standards surveys, or the Wired Score, as frameworks to build a score from. As the interest in ESG rises, global standards will become established in the future.

• What is the difference between ESG and SRI?

  SRI, or Socially Responsible Investing, is often compared with ESG. The two are very similar but there are some notable differences that are worth keeping in mind before you begin your ESG journey. Unlike ESG, SRI actively discounts or promotes investments based on ethical guidelines. ESG, however, measures a company’s environmental, social, and governance practices, with other financial measures, and rates them rather than removing them as options.

• Are ESG and CSR the same?

  Another metric that is often associated or compared with ESG and SRI is CSR. CSR or Corporate Social Responsibility is a kind of self-regulating business model that businesses use to demonstrate their awareness of the impact they have on society. It’s similar to ESG, but not identical. CSR is a metric individual companies use to assess themselves, whereas ESG is a metric more commonly used by investors to determine the overall ethics and morals of a company they may choose to invest in.

• What is the difference between ESG Ratings and ESG Benchmarking?

  ESG ratings and ESG benchmarking are not the same things. In short, ESG certification, or ESG ratings are more in-depth assessments. They feature in-depth analysis that can help portfolio managers and business managers to develop and deploy an incredibly informed ESG strategy. They are sophisticated analyses that require a lot of research, detailed questionnaires, in-person site visits, and labour-intensive inquiries. For those looking for a roadmap towards indisputable ESG compliance, an in-depth assessment can be an expensive investment that will yield positive results.

  However, it’s not always in the best interest of a company to go down this route, and that’s where benchmarking comes into play.

  ESG benchmarking is a simpler form of assessment that’s targeted to a different audience and serves a different purpose. In short, ESG benchmarking provides broader results that can give portfolio managers, business owners, and investors, a broader indicator of what an asset is worth. The benefit of this, of course, is that although it’s broader, it can provide ESG clarity to a bank, valuer, or fellow managers. It is not as in-depth and often does not require a site visit, but it provides a different result.

  In summary, ESG ratings from research houses and advisory companies, such as Savilles, can provide an impressive deep-dive into ESG compliancy and provide a detailed strategy for the future. ESG benchmarking services, such as those provided by companies such as ECORE, can provide a helpful initial indication that can be used to attract investors or secure funding.

• What is ESG Investing?

  ESG investing is a very popular term, but what does it really mean? So far, we’ve covered the salient points about ESG, but the actual investment topic is worthy of its own article. In short, ESG investing is very similar to socially responsible investing, sustainable investing, and impact investing. It applies to investors who see the value in prioritizing ESG ethics and companies and portfolios that are dedicated to reaching ESG-driven outcomes. ESG investing is all about investing in projects that have positive environmental, social, and governance, end goals based on the assumption that environmental and social factors can have a measurable influence on the financial performance of organizations and portfolios.

  Investing in support of social good has grown in popularity in recent years. However, the effects and influence of the COVID-19 pandemic have seen interest in ESG investments grow significantly. Since ESG outcomes are built around resiliency, it’s not hard to see why investors are keen to put their money in sustainable businesses and portfolios.

• How is ESG investing growing and changing?

  The COVID-19 pandemic may have shone a spotlight on the importance of ESG when it comes to investing, however, it is just one of many concerns that are accelerating interest in the topic. Using ESG as a tool for measuring sustainability, resilience, and social good is one way that people are using to hold investment opportunities to a higher standard, and that change in investment mentality is being accelerated by a change in investor demographics. For example, Millenials and younger investors have a greater awareness of social and human rights, as well as ecological concerns, and how these challenges can cause risks to the business sector. As the mindsets of investors evolve, it’s important that businesses and portfolio managers evolve with them, and that’s why a strong interest in ESG is of vital importance.

• What does ESG have to do with Smart Cities?

  At bee smart city, we’re in the business of promoting Smart Cities, but what does that have to do with ESG? So far, it would seem like ESG is a measurement tool for investors to use to gauge the potential future profitability of a portfolio or business, and while that’s true, there’s more to ESG than making money.

  ESG goals are all about sustainability, whether that’s in the form of building practices, climate protection, social justice, social responsibility, or democratic governance. All of these positive ethics run in parallel with the United Nations Sustainable Development Goals, which are key pillars of modern Smart City development. That sounds like big talk, but the link from ESG to Smart City is actually very simple.

  Smart Cities are formed by smart buildings, populated and governed by smart citizens, living in smart districts, who work in smart businesses. It’s smart workplaces and buildings that are the foundations of our smart cities, and with more businesses and real-estate developers supporting ESG principles and working towards ESG compliance, it’s possible for us to accelerate the Smart City ecosystem and integrate ESG strategies into the future of our municipalities.