ESG for real estate: navigating between best practices and big data

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The three pillars of ESG work in synergy, and the real estate industry, which for many years has focused on environmental impact mitigation and governance strategies, is also trying to make strides on social strategies with the help of big data. We discussed this with Anna Maria Pacini, Head of ESG Management at DeA Capital Real Estate.

The three areas of ESG are impacting the real estate sector in different ways. How exactly?

All three issues should be viewed from a dual perspective, internally, at the corporate level, and externally, in terms of the business and supply chain. The “E” in “Environment” is definitely the issue that is most widely addressed at the moment. The “G” in “Governance” for financial companies like ours is highly regulated, however taking action in this area and ensuring an adequate management system is also very important for SMEs and companies that have not yet adopted an organizational process consistent with our country’s regulatory architecture, which is highly advanced in these matters. As a reference, we have a European regulatory framework – primarily the UN Agenda 2030 – that affirms the focus on the protection of people and labour, which, absurdly, is becoming increasingly fragile. Governance, in its “outward” dimension, is the monitoring and related attestation that a company’s own supply chain is also complying with the same system of rules as the commissioning companies on regulations such as anti-money laundering and anti-corruption, conflicts of interest, employee and contractor protection, health and safety, etc.

We have capitalized on more experience when it comes to “Environment”. What do we know today?

Governance is the foundation underpinning the other two pillars, “E” and “S”, since having a proper management system, with clear and defined roles and responsibilities, also ensures that the other variables are covered: supplier vetting must be conducted in all three of these areas. The environmental aspect is also more regulated thanks to the Green Taxonomy (Editor’s note, this taxonomy helps investors uniquely identify activities and assets that contribute to sustainability goals), and the ultimate goals are similar for all players in the supply chain. In this respect, the real estate sector, when regarding real estate as the residential envelope of any business activity, is one of the most impactful. We know that EU buildings are responsible for 40% of energy consumption and 36% of greenhouse gas emissions. In Italy, in particular, we have a very dated housing stock, but my experience is that even historic and artistic heritage can be redeveloped – including part of the postwar built environment – with significant results in terms of reducing negative impacts.

It is less easy to gauge the “Social” component. How can this nevertheless be done?

Those who work in the real estate sector know that regeneration and environmental strategies also directly and indirectly support the Social theme; the quality of spaces and the well-being associated with the people who inhabit them, as well as the impacts on the relevant local communities, are a central issue. At the “corporate” level, it is easier to “gauge” the Social component, partly due to the standards of mandatory non-financial reports for large companies (e.g., GRI), which indicate the aspects that should be measured (gender equality, health, safety, etc.). The problem is applying these measurements to the real estate product since for now the benefits are more qualitative than quantitative, and defining development strategies that consider these variables within different asset classes – hotel, tertiary, residential, social housing – certainly requires fundamental differentiations. Moreover, in our industry, inevitably, development, and even more so redevelopment, generates a positive impact on communities, quality of life, and local safety. Measuring these effects will require substantial definition of uniform metrics and calculation methodologies, as well as a consequent evolution of data collection and analysis systems.

Are you already working on big data? How?

To date, there are no single methodologies for data collection and comparison. For example, with regard to consumption/emissions per square meter, it varies depending on who is reporting: there is no clear definition of how areas should be counted against consumption, e.g., underground parking lots do not have the same consumption as office areas.  In Italy we also do not have a digitized land registry or a unified and computerized APE certificate management system that would guarantee support for operators from central administrations and uniformly guide evidence from all operators. All of this means that it is still difficult to compare the results that we, as operators, deliver for the benefit of the market with a view to transparency. Real estate SGRs – Società di gestione del Risparmio (Editor’s note, real estate FIAs – alternative investment funds – are an investment vehicle administered and managed by an independent and regulated third party, known as an SGR) – are not very numerous in Italy, so we are trying to team up in order to give ourselves uniform and shared rules that enable stakeholders to compare results.

On the social side, we have relied on Nomisma S.p.A. (Editor’s note, an independent company that offers sectoral and area-based studies, economic research and market intelligence, evaluations, strategic advisory and consulting services) to define social parameters and related measurement materials, relying on their nationwide surveys to help us understand the impacts our actions at both the macro- and micro-community levels.

What issue do you think we are underestimating of the many aspects that comprise the complex scenario of the environmental crisis?

Yes, we are forgetting about water. There is a lot of talk about energy, yet we are underestimating the danger of our land undergoing periodic droughts and calamitous weather events related to ongoing climate change. In the real estate sector, we are strongly focused on reducing consumption, but at the national level there are regulations that do not facilitate the use of alternative water sources, while the parcelization of suppliers does not permit unified management of this issue. Naturally, we hope for intervention at the central level, which will have an effect on local distribution networks, so as to limit the dispersions that often result from the ageing and dilapidated water networks, as well as to enable timely management of consumption, which is still done with non-electronic meters and therefore very often based on annual estimates. More attention needs to be paid to this issue at the general real estate level, which is currently being addressed by the manufacturing sector, both due to consumption and related costs.