The topic of ESG has become ever more important for organisations involved with residential and property development projects and masterplans.
Socially conscious investment in property is no longer a nice to have, but rather a default for those companies drawing on institutional, pension, or government funds. A study by Bloomberg found that investments in sustainable and socially conscious projects have risen by 134% from 2018 to 2022, and in dollar terms from USD 30.6 trillion (2018) to USD 41.0 trillion (2022).
As a result, having an action plan and clear reporting against ESG criteria is now essential for house builders, housing associations, and property developers.
At PlaceChangers, the work we do when supporting consultations, site analysis or health impact appraisal reports helps those users involved with construction projects to tackle ESG criteria in the delivery of planning projects.
Here are a few points for those organisations at the outset of their journey to adopt ESG guidelines to source funds from socially-conscious investment sources.
Where does ‘ESG’ come from?
The ESG debate is complex and can appear top-down, rather than a grass roots action, as it has primarily been developed in the context of investment activities.
The acronym ‘ESG’ was first mentioned in a study referred to as “Who Cares Wins”, in the run up to a Word Bank conference held in 2005.
This report was a “joint initiative of financial institutions which were invited by United Nations Secretary-General Kofi Annan to develop guidelines and recommendations on how to better integrate environmental, social and corporate governance issues in asset management, securities brokerage services and associated research functions.”
The accompanying conference held in 2005 brought together institutional investors, asset managers, consultants, and government regulators, amongst others. This has been part of a wider drive behind regulations that aim at issues such as climate change.
What does ‘ESG’ stand for anyway?
ESG commonly stands for Environmental, Social, and Governance criteria.
Environmental criteria include aspects such as the energy impact of an organisation and activities relating to tackling carbon emissions and addressing climate change.
Social criteria include relationships with labour, aspects around inclusion and diversity, and also the opportunities the company provides to the public through projects or products.
Governance criteria refers to the internal systems, the controls, and processes to make decisions in compliance with good governance. This can include processes and controls to understand and report on specific impacts or opportunities the company creates.
While ESG makes it sound like isolated areas, they are naturally linked.
What does this mean for organisations involved in property development?
ESG criteria are hugely influential for organisations that use funds to develop new homes and neighbourhoods. According to a 2022 study, key motivations behind ESG in property development are the opportunities for greater returns in the long term and the reduction of risk.
Institutional investors, pension funds, and government actors increasingly apply ESG criteria to their investment choices. They require consistent monitoring.
ESG is often associated with the following:
- Implementation of environmental, social, and corporate governance principles
- Provision of information and reporting on performance
- Signing up to best practice and agreed standardised formats for reporting
- Development of metrics to ensure that projects include consideration on environment, social, and good governance practices
For organisations, environmental, social, and governance criteria can be an enabling framework for high quality projects.
What are the key ESG issues applicable to property development?
Construction including the planning and design of new urban spaces naturally has a profoundly long-lasting impact, with issues that can be tackled through the application of good principles.
The impacts for those in real estate naturally go beyond cold benchmarks. ESG in property development effectively opens the door to consider how projects positively affect communities in the long-term.
Here are some potential impacts from urban planning projects:
- Opportunities to support diverse communities through suitable tenures
- Tackling of inequalities in health and wellbeing
- Enabling provision of suitable homes and living spaces
- Improvements to local services as part of developer contributions
- Biodiversity enhancements partly through site design or off-site contributions
- Generation of new partnerships to shape places for the future
- Investment in and strengthening of the local workforce through opportunities in construction
As part of the implementation of ESG criteria to your organisation, the important thing is to decide what you want to measure and how, in order to evaluate the environmental, social, and governance impacts those projects had.
What can you do now?
If you are working in a property development company, here are a few actions you can take to address ESG in your company.
Evaluate your portfolio
Evaluate your current portfolio of projects. Do you have criteria in place that might help you in assessing those projects against an ESG criteria? If not, it’s worth starting there in order to ensure project-wide consistency.
As most of our work in property is done by projects employing different consultant teams, it is likely that ESG-related impacts were captured or developed in different ways. Take your top 10 projects and revisit how ESG-related criteria were communicated.
Often some of the positive talking points relevant to ESG criteria are also mentioned as part of marketing and sales material, for example citing investments in schools or infrastructure. Consider which impacts you can capture consistently and which metrics can provide a clear ground truth within the organisation.
Pull together a framework that guides ESG efforts
Part of ESG is about a drive towards commonly accepted reporting. However, generic guidance is not necessarily meaningful for your organisation or your stakeholders. Take a moment to consider what criteria you would see your projects being measured against.
For example, companies such as Redrow or Igloo Regeneration have in-house frameworks to guide development at portfolio-level. Could your organisation benefit from the same? Here are the examples:
A placemaking framework including eight principles that touch on how sites should be designed. Each category can link to ESG criteria and is a rearticulation of what ‘good’ looks like for the business.
Igloo is a specialist for partnership-led regeneration. They have crafted a development method using six dimensions that can link back to ESG criteria and investment decisions.
These frameworks are a helpful guide to understand what project quality means. They are also a step towards capturing measurements and relevant indicators that could translate to or complement ESG criteria.
Focus beyond the home
House builders are often used to focus on the sellable product and specifications for home. From an ESG standpoint, this is too limiting.
Instead, review what else they contribute to the wider area. Development and planning projects typically can have many positive impacts, from support for local schools, GPs, or infrastructure improvements. Well-designed neighbourhoods, particularly of a large scale, also create economic opportunities for businesses and future residents.
As an extension of the point above, ensure that you consider how your portfolio addresses these wider issues.
Digital tools, such as the PlaceChangers place report tool, provide comprehensive spatial analytics for the place around your site and give you an instant snapshot of population priorities.
Find relevant industry peer groups
Appoint a lead on ESG
Identify a champion in your organisation to identify ESG-related issues. Be aware that ESG implementation is a wide-ranging topic, which is cross-functional and interdisciplinary. Depending on the size of the organisation, the role could be combined with a relevant portfolio holder. In the best case, the role is hands on, connecting actual development outcomes with higher-level reporting.
Use digital tools to tackle social criteria during planning in design
Tools for site planning and development have drastically advanced in their sophistication. One example is the PlaceChangers planning toolkit, which is powered by proposal mapping capability, andis specifically designed to help highlight and address social criteria for project delivery.
PlaceChangers tools comprise:
- Powerful digital engagement tools using site layouts as conversation tool
- Unique automatic place reports highlighting population priorities
- Integrated appraisals to help introduce consistent review stages against established appraisal methods.
Digital tools can take a lot of the effort out of the documentation and delivery against ESG objectives by agreeing on key metrics which can feed into portfolio reports.
For example, the PlaceChangers engagement tool enables consistent reporting on levels of community participation, and actions taken as a result of community feedback.
Investigate reporting frameworks
Be aware of consistent reporting methods and, if relevant, agree with inventors which reporting framework to use. For real estate related companies, the following assessment methodologies have become popular:
- GRESB Real Estate assessment: Industry-specific standard for reporting on project portfolios.
- GRI Standard for Sustainability reporting: First used in 2000, the GRI standard is now widely used. In 2017, 75% of the global fortune 250 companies used this standard.
- Sustainability reporting Standard for Social Housing (SRS): A framework started in 2020 specifically aimed at social housing projects.
Each of those organisations above try to solve the challenge of reporting ESG-related issues to project investors in a consistent, and compliant manner.
These frameworks are not necessarily light touch and it is advisable to see the support of a relevant qualified professional with experience in these frameworks.
Consultancies, such as Keyah Consulting, can help with the application of those frameworks.
Focus on design quality
Application of ESG in property development can appear complex, and it carries a long lead-in time and implementation cost. Start with small steps that can yet bring about substantive change.
While there is no single silver bullet that works for all organisations in the same way, a key message here is that being focused on good quality designs and neighbourhoods goes a long way. ESG is a long-term investment, creating economic opportunities not just for communities but for property development organisations.
Well-working designs with suitable homes are more likely to stand the test of time and have long-term positive impacts in a community.
Be prepared for more detailed discussions with potential funders in relation to the performance of the design projects you are working on. This would need a portfolio-level focus which is applied consistently across projects.
Digital tools such as PlaceChangers can help to unlock quick wins for the Social within ESG through place reports which rapidly demonstrate population needs; and interactive consultations which include residents in design.
Explore the PlaceChangers planning toolkit
PC Engagement - market leading planning engagement
Set up powerful map surveys and polls based on the changes that may come up on your estate and prioritise future planning interventions more easily.
PC Site Insights - Unique location insights tool for health and wellbeing outcomes
Start to make use of location data and enrich your community engagement planning with insights on local people. Add in your own data sources and gather analytics in one place.