ESG

What do I need to know?

The Environment, Social & Governance (ESG) Agenda is the umbrella for responsible business practices in both the public and private sectors. The predecessor to the ESG agenda is corporate social responsibility. The main difference is that the ESG agenda is more holistic and numeric. Large companies in the EU are already being affected by ESG-regulations requiring them to submit reports disclosing their actual impact on each of the three areas. The basis for the ESG agenda is the 17 UN Sustainable Development Goals 2030, the UN Global Compact initiative, the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises.

The ESG agenda also addresses risk management and mitigation in all areas other than purely financial and competitive issues.

Environment: This area includes a company's impact on climate, the environment, and biodiversity through its business conduct, activities, and services, as well as its indirect impact through investments or procurement of products and services.

Social: This area is divided into two parts: first, a company's policies and behaviors related to its employees, and second, a company's impacts and consequences on suppliers or other stakeholders directly or indirectly affected by the company's activities, investments and procurement.

Corporate governance: This is about the management of the company in general and whether it contributes to the company's sustainable behavior. This includes the responsibility of the Board of Management to strategically integrate processes to mitigate negative impacts on human rights and the climate into the value and supply chains. This also includes KPIs such as board composition by gender, age and minorities. It is essential that companies disclose their governance policies, risks, and potential negative impacts on the sustainability of all ESGs.

Is it relevant for me?

It is relevant to you as a real estate owner or investor for the following reasons:

• The ESG agenda will have both direct and indirect impacts on returns. Direct impacts, such as financing conditions and demand for green assets, are already being felt in real estate markets. Indirect impacts are underpinned by research showing that consumers are willing to pay up to 23% more for sustainable products and services, which impacts your company's day-to-day profitability.
• The biggest risk in real estate right now is sustainability. Real estate investments without a clear overview of emissions and climate impact run the risk of ending up as stranded assets. Therefore, emissions reporting is closely linked to risk mitigation and investment valuation.