What can the Social (S) learn from the Environmental (E) in ESG?

The Savills Blog

What can the Social (S) learn from the Environmental (E) in ESG?

When it comes to environmental, social and governance (ESG), the ‘E’ has not only led the charge but is also better understood, more widely recognised, and more effectively measured compared to the social and governance parts.

Addressing this difference is crucial to ensuring that the entire spectrum of ESG is given equal consideration.

Understanding the ‘E’

The climate emergency has been the catalyst for people to accept and recognise the ‘E’ in ESG. In 2015, world leaders pledged to prevent global temperatures from rising by more than 1.5°C  under the Paris Agreement. This highlights widespread acceptance of the ‘E’, bolstered by governmental support and legislation, which in turn has generated corporate support. When examining real estate specifically, it is widely documented that the sector is responsible for approximately 40% of all greenhouse gas emissions globally, leading to clearly identified areas of focus and action.

Despite factors such as the increasing recognition of the importance of mental health triggered by the pandemic, we are yet to see similar support for the ‘S’, so, what are the social tangible impacts within real estate that resonate with the public agenda?

Valuing the ‘S’

The ‘S’ must demonstrate tangible value to society through positive outcomes for communities, which are recognising that real estate can change their lives. Whether that be through the activation of impactful commercial space, the creation of employment opportunities, the neurodiversity considerations through design, the inclusion of creative industries, or the delivery of community programmes, the outcome should remain the same; a net positive impact that creates change for the better.

Lessons for the ‘S’

Investors have recognised this and assigned financial value to the ‘E’, which the sector must learn from. Social value should be seen as an investment, not a cost. As with any investment, businesses expect a return. Initially the ‘E’ faced scepticism, prompting similar scrutiny as the ‘S’. For instance, in the debate between green premiums and brown discounts, the ‘S’ must demonstrate its value as a premium product essential to both the fabric of the building and community it serves, supported by robust evidence.

However, currently there is a lack of robust data, complicating efforts to attribute financial gains to social initiatives. The ‘S’ needs to be measurable and understandable. In the past, carbon measurement suffered from confusion due to multiple methodologies and standards. Social value must avoid this by establishing clear, standardised definitions, similar to the clarity achieved by the ‘E’ with terms like ‘decarbonisation’ and ‘net zero’. Similarly, the ambiguity surrounding measurement requires clarity around existing calculators, toolkits, frameworks and methodologies to accurately reflect the significant impact real estate can have on individuals’ lives.

Regulation is another area where the ‘S’ can learn from the ‘E’. From an environmental perspective, there is now robust governance and regulation with corporate penalties for ‘greenwashing’. The ‘S’ must swiftly adopt similar measures to ensure transparency and accountability.

Moving forwards

Of course, all the components of ESG are intrinsically linked and for them to work harmoniously together and create the greatest impact, their importance needs to be balanced. The ‘S’ still has a way to go in receiving the same attention as the ‘E’. We must advocate for social value to receive institutional focus, governance structures and recognised qualifications to raise awareness and positively shape the future of real estate.

 

Further information

Contact Wesley Ankrah

Real Estate Insights Podcast: Savills Earth Series 2: How is social value changing real estate?

 

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