Effective sustainability reporting in commercial real estate (CRE)

The world’s properties account for a staggering 40% of the world’s carbon dioxide emissions, and building management in commercial real estate (CRE) alone is directly and indirectly responsible for 10.5% — more than aviation and agriculture.

It’s no mistake that sustainability has become such a major driver in our sector. According to Emerging Trends in Europe, 90% of industry leaders predict that environmental, social, and governance (ESG) policies will most affect the real estate sector by 2050.

Simply existing as a sustainable business is no longer enough. Clearly defined ESG goals and effective reporting of your organization’s progress towards them can make all the difference, whether a startup needs investor capital to grow or a multinational corporation making inroads in a new market.

This is why the European Union has chosen to legislate, introducing the Corporate Sustainability Reporting Directive (CSRD), requiring ts all registered European companies to provide detailed and independently certified reports on sustainability issues on corporate sustainability reporting,

The legislation will take effect in January 2024 for large businesses and will have a lasting impact on the world of commercial real estate.

What is sustainability reporting?

When we think of ‘sustainability reporting,’ environmental policy, specifically carbon emissions, naturally comes to mind. While this is an important part of the framework, businesses often go beyond this as a form of corporate social responsibility (CSR).

According to the Harvard Business Review, Fortune Global 500 firms spend around $20bn per year on CSR. Sustainability reporting is a key aspect of this, as businesses are obliged to report their ESG policies to investors and customers. These include, but are not limited to:

• Environmental performance: Energy consumption, water usage, waste generation, greenhouse gas emissions, renewable energy sources, and use of sustainable materials.
• Social performance: Employee engagement, diversity and inclusion, community involvement, and health and safety initiatives.
• Governance performance: Ethical business practices, corporate social responsibility policies, risk management strategies, and board diversity.

To achieve these aims, companies of all sizes set top-level key performance indicators (KPIs) and invest resources to meet those targets for investors and employees who benefit from fairer social, environmental, and corporate governance principles.

Why sustainability reporting affects your business’s bottom line

So why do organizations invest so heavily in sustainability reporting? It’s more than just optics.

Modern companies have an obligation to communicate their progress in fulfilling their ESG policies to investors and key stakeholders, as well as to their own employees.

Business leaders know staying still in the ever-competitive corporate world is impossible.

CEO Michael Dell in his organization’s sustainability report argues that “business as usual is not enough. To make a meaningful difference, we must inspire and innovate…by demonstrating our positive impact on society and the planet”.

Customers also pay close attention to a brand’s reputation, with 62% of Generation Z most likely to buy products from sustainable businesses. The corporate world knows it must pay more than just lip service to its ESG policies before customers vote with their wallets.

Sustainability reporting, therefore promotes accountability within organizations; not just to their shareholders and investors, but also their customer base and the brand’s reputation in society. If a business can’t be accountable in this way, how can it be trusted?

What does a sustainability reporting framework look like?

Another key advantage of sustainability reporting is that it prevents the accusation of greenwashing.

Established ESG frameworks such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) standardize the nature of ESG reporting to hold the business community accountable and create a culture of certainty for investors and consumers.

Businesses can opt for comprehensive ESG reports that measure the company’s progress towards its sustainability goals. Alternatively, they may choose specialized sustainability reports, delving deeper into specific topics within the ESG umbrella.

Which framework should your business use?

Choosing the appropriate framework for your business remains crucial globally, particularly as industries evolve and new measurement systems emerge. While GRI remains the global standard for broad ESG measures, specific industries may benefit from SASB’s sector-based metrics.

Investors overwhelmingly consider GRESB the gold standard within CRE when measuring ESG performance. Its approach provides a score based on an organization’s ESG data, which fund managers consider directly when investing in the CRE space.

To accurately report within different standards like the ESRS and GRESB frameworks, ESG data platforms become necessary tools for CRE businesses, to streamline reporting, improve internal decision-making, and ultimately produce more accurate and manageable ESG data for investors, auditors, and relevant stakeholders.

What is the Corporate Sustainability Reporting Directive?

For European property businesses, the ongoing implementation of the CSRD will shape the sector for years to come. The directive is underpinned by a set of 12 European Sustainability Reporting Standards (ESRS), which are still being implemented by the European Commission at the time of writing.

How will this affect the CRE sector? CSRD compliance efforts often revolve around energy-efficient buildings, sustainable property management, and ethical business practices.

As real estate is among the highest-polluting sectors, accounting for 29% of all greenhouse gas emissions in the EU, it will certainly face increased scrutiny to deliver more effectively on its ESG policies and report them with greater accuracy and transparency.

The ESRS establishes common frameworks in a range of areas, from climate change and pollution to workforces and business conduct. As of January 2024, all large companies with over 500 employees must comply with the new reporting standards, with SMEs following in 2026.

Why is sustainability reporting so important for your CRE organization?

With the CRE sector’s environmental impact now more important than ever, and with European businesses in particular now subject to tightly controlled rules on ESG reporting, your credentials as a business and how they are reported can sway investors. For example, we now see greater scrutiny of carbon emissions, waste management, and energy efficiency.

Yet evidence still suggests that organizations lack clarity in their sustainability reporting. PwC’s 2023 Global Investor Survey reveals that 94% of investors believe that corporate ESG reports contain some level of unsubstantiated claims, and more than half (57%) support greater clarity in sustainability reporting.

The report notes that we are moving “from a period of awareness raising around the importance of climate to a time where investors are increasingly asking specific and tough questions about how companies are addressing those issues in their strategy.”

Trust and transparency are the key to accurate ESG reporting

With investor skepticism and the CRE industry awash with accusations of greenwashing, integrity should be at the heart of an organization’s intent regarding sustainability reporting. ESG issues should not be seen as a ‘box-ticking exercise’ but a process central to an organization’s culture and values.

In CRE, sustainability should be the starting point for commercial development. ESG green buildings — structures engineered with sustainable materials and low carbon consumption at the forefront- are shining examples of what the industry can be if it puts sustainability and intelligent data-driven solutions first.

Data is the ultimate ally of building managers and contractors. It doesn’t just help the CRE sector become compliant with the policy-making agendas of the EU and industry bodies, it also builds trust and transparency for investors and stakeholders. They ultimately seek certainty that the allocation of funds will return investment.

With sustainability ingrained into the design-and-build, harnessing data in ESG reporting sends another powerful message of trust to long-term investors and responsible stakeholders that a project allocates resources efficiently, reduces consumption, is risk-aware, and is ultimately profitable.

Why Use ProptechOS for ESG reports?

To meet the sector’s demand for accurate and clear ESG reporting now and in the future, Certify uses ProptechOS technology to automate building certification and provide a clear picture of an organization’s ESG framework.

As a system that collects, stores, and reports ESG data for the CRE sector, Certify can deliver more effective sustainability reporting in a number of ways. These include:

• Automation of ESG reporting. Certify collects data in tandem with digital twins and other building management systems (BMS) to provide an accurate picture of a portfolio’s sustainability, avoiding the need for manual data collection and site visits.
• Fast-tracked certification. Investors rely on independently assessed building certifications including LEED, BREEAM, or OVK. Certify automates this process, simplifying the internal administration of sites.
• Improved decision-making. With access to the full suite of data, teams can better understand their building portfolios and make smarter decisions around resource allocation, procurement of contracts, and other key decisions.

With Certify, your ESG goals can be more effectively reported through its data-driven approach, streamlining reporting, industry certification, and communication of sustainability measures to key stakeholders.

Your CRE business can sign up for a free trial today.