Heat networks can provide an economical low-carbon solution for investors, operators and residents alike but it’s vital to embrace best-practice approaches
ESG – Environmental
Construction and operation of buildings entails significant use of resources both directly and indirectly, with accompanying implications for the environment.
The risks and impacts that real estate and construction activities pose can be avoided or mitigated by careful strategies. For example, real estate owner might opt to use renewable energy sources, or it might choose to retrofit a property to mitigate climate risk through higher levels of energy efficiency.
The way in which materials are procured also matters, and this can lead to the use of ethical sourcing policies (such as those applying to timber).
In view of the declaration of a climate emergency by many Central and Local Governments and businesses, there has been an emphasis in ESG on climate related risks. However, the recent Das Gupta Review and the forthcoming Environment Act are likely to lead to a renewed emphasis on safeguarding natural capital, given that 15% of species worldwide are currently under threat.
ESG – Social
Social criteria cover an extremely wide range of potential issues, but all of them are essentially about social relationships. One of the key relationships for a company, is the company’s relationship with its employees and another is with its residents.
Dimensions that real estate owners may wish to consider are the comparative treatment of employees via pay and conditions relative to competitors, and how well their employment policies support diversity and inclusion within the workforce.
In respect of residents, measuring the extent of engagement with customers via various channels, and its responsivity and effectiveness in serving customers are meaningful aspects to track.
Whose role is it?
Governance in the context of ESG is essentially about how a company is managed by the management team of the organisation. How well do executive management and the board of directors attend to the interests of the company’s various stakeholders – employees, shareholders, and residents? Does the company give back to the community where it is located?
Financial and accounting transparency and full and honest financial reporting are often considered key elements of good corporate governance. Also of importance are board members who are acting in a genuine fiduciary relationship with stockholders and being careful to avoid any conflicts of interest with that duty. Further, are the board members and company executives a diverse and inclusive group and thereby able to take balanced and nuanced decisions for the benefit of the enterprise.
During the Building Lifecycle
We can look at ESG through another lens, that of the building lifecycle.
During this phase, attention should be paid to taking advantage of the environmental and social impact of building form and orientation, choice of materials, and good selection of building services and fittings that will enable efficient operation of the building. Design and certification tools can and should be selected to assist with delivery of good outcomes for resident wellbeing and health, and attention should be paid to the interaction between the community and its wider context.
Attention to local amenity, such as transport, can also enable sensible decisions as to how the community can tread lightly when it comes to environmental impacts (e.g. great transport links that are capable of accommodating further capacity may reduce dependencies on car use among residents)
The construction phase offers opportunities to work with local suppliers and people. Ethical procurement practices, and local skills and employment strategies can help to assert a positive impact in the local community. Deployment of offsite construction practices and stewardship of materials can help to minimise the avoidable negative aspects of onsite construction and address issues such as embodied carbon. Further, partnership with the supply chain can further engender positive benefits during the construction phase through goal alignment
Building operations can help to encourage more sustainable choices not only in the professional management of the community, but also among its residents. Local employment at this stage can help to ensure local knowledge and awareness is entrenched in management, as well as ensuring that staff are drawn from a socially diverse and inclusive community. Looking after, and developing staff, is also paramount to ensuring consistently high levels of service to residents.
BTR has also consistently shown itself capable of thinking about ways to improve the health and wellbeing of residents by focusing on making the user journey more effective, and introducing features that are high on the wish list of residents from deposit free renting to permitting pets in lets.
During the operational phase, attention must be paid to building performance not only to close the gap between design expectations and operation, but also to keep a close eye on anomalous performance that may require maintenance. Through information campaigns for residents, it is also possible to encourage them to make good choices in procuring their own energy, as well as taking steps to ensure high efficiency fittings and appliances are installed in homes as standard.
The UKAA’s BPG ESG Working Group has prepared a set of commitments that members can voluntarily adopt. You can consult and download the guide here.
The BPF Residential ESG Working Group’s guidance for institutional private rented sector (PRS) landlords, managers and developers to identify and encourage uptake of services that best suit their schemes, portfolios and companies – and encourage sector-wide uptake of an ESG approach to housing. Assessment of the characteristics of each ESG service were made considering all publicly available information on each service’s website. The BPF plans to update the guidance periodically as new services emerge and evolve.
On 18th October 2021 HM Government published the policy paper ‘Greening Finance: A Roadmap to Sustainable Investing’ which sets out the Government’s long-term ambition to green the financial system and align it with the UK’s world-leading net-zero commitment. This document focuses on the first of three phases, which will be delivered through new economy-wide Sustainability Disclosure Requirements.