Significance of ESG in Real Estate

The threat to the environment from climate change and pollution is encouraging corporates to implement policies that ensure sustainability. Environmental, Social and Governance, (ESG) is fast gaining popularity among corporates. ESG in real estate is a set of corporate performance evaluation criteria. It is meant to assess a corporate’s sustainability efforts. Today the concept is also widely being used in the real estate sector and is playing a crucial role in addressing climate change. In this article we will highlight the importance of Environmental, Social and Governance in the real estate sector.

Risk management

Properties are prone to risks due to a variety of factors. However properties that adhere to ESG are much more adaptable and can withstand the risks that may arise from climate change and regulatory shifts. Today a significant proportion of developers are constructing properties that come equipped with sustainable qualities. These properties are versatile and can easily conform to the ever evolving market dynamics. This in turn helps companies and people as it lessens the effects of financial losses.

Green buildings

Recent years have seen developers opting for green buildings. Green buildings are eco-friendly and offer residents and the society with numerous benefits. Water and energy are natural resources and need to be conserved. Water and energy resources are often utilised beyond their capacity in regular buildings leading to increased costs and scarcity of these precious natural resources. On the other hand, green buildings use less water and energy. Besides, green buildings generate minimal wastage, generate a lower amount of pollution and toxic elements. The increasing carbon footprint is a rising concern around the world. Carbon footprint assesses the greenhouse gas emissions which can cause significant harm. This has necessitated the dependence on renewable energies and other resources beneficial to the environment. Green buildings reduce greenhouse gas emissions.

Adhering to regulations

Many governments around the world and in India have adopted tough regulations in the real estate industry. Buildings now have to adhere to certain rules and regulations which safeguard the environment as well as homebuyers. This has encouraged many real estate companies to consider Environment, Social and Governance principles. Some governments and municipalities have become strict and not complying with ESG norms can impose heavy penalties, which is good for companies, homebuyers, and communities.

ESG and infrastructure 

Infrastructure development forms an important part of the real estate sector. Today developers are building infrastructure that conforms to ESG norms. Before constructing or investing in an infrastructure project, developers are assessing certain factors like the impact of the project on the environment, resources, energy consumption, etc. A project that has a positive impact on the environment will prove beneficial for the communities and the country. 

Customer demand

The demand for buildings aligned with Environmental, Social and Governance principles is increasingly gaining popularity among homebuyers and tenants. This has in turn encouraged developers to take ESG in real estate seriously. Today more developers are building infrastructure and real estate projects that are in line with ESG to ensure that the uniqueness of the property attracts more buyers and sales. ESG is a significant aspect and is playing a unique role in boosting the real estate’s growth and reputation. 

Gaining popularity among developers

A few years ago, ESG was not very popular among developers; however, all that is changing. Today, investors prefer to invest their money in projects that are ESG-compliant. This has in turn encouraged builders to construct projects that are ESG-compliant. Since the focus is on using products that are beneficial for the environment and the communities, developers are building projects and infrastructure with reduced carbon footprint. The future will see more developers adhering to ESG principles. 

Conclusion

Environmental, Social and Governance is a significant tool in the real estate sector. Today ESG has come to be widely relied upon by developers and offers various benefits to investors and tenants. Besides making properties sustainable and environmentally-friendly, ESG lessens the risk factor and meets the regulatory norms. It also enhances the property’s appeal thereby attracting more buyers and tenants. ESG is becoming increasingly important for developers to construct properties that are in tune with ESG principles. With the focus on a sustainable future the significance of ESG in real estate will rise further.