The challenges of ESG data management for the real estate business

An increasing awareness of environmental, social, and governance (ESG) factors has led companies to evaluate and enhance their sustainability performance. Particularly in the real estate industry, the integration of ESG criteria has gained significance. However, ESG data management presents a complex challenge as real estate companies grapple with a multitude of data sources, integration issues, and stakeholder requirements.

ESG and real estate: navigating risks and embracing opportunities

Driven by investor and regulatory pressure, the real estate business has been one of the early adopters of ESG. In this resource-intense sector that contributes 50% of global resource consumption, 36% of energy consumption and a large share of the labour market, ESG risks as well as opportunities abound for the real estate ecosystem.

While environmental considerations top the list of ESG concerns in the real estate industry, the social aspects of built environments are growing as another point of focus – especially after heightened public health awareness post-pandemic.

Numerous sustainability certifications and ratings such as:

• LEED,
• BREEAM,
• and the exclusively health-focused WELL and Fitwel
  

have proliferated the market of real estate players that want to demonstrate sustainable leadership, whether for compliance, financing, or marketing reasons.

In addition, the EU taxonomy poses a particularity for real estate companies having to report on a portfolio of multiple buildings and projects.

Top environmental data challenges

Environmental data challenges in the real estate industry can be summarized as follows:

End-use consumption: ESG criteria for real estate are complicated by the consumption patterns of tenants and occupants, which are beyond the control of building operators and owners.

• Energy and water consumption have a significant impact on the environmental footprint of buildings.
• While green buildings can reduce resource consumption, tenant behaviour still heavily influences consumption data.

Data collection on tenant consumption and waste management:

• Collecting data on tenant resource consumption is challenging.
• Effective waste management relies on utilization rates and can be difficult to monitor.

Climate risks and resilience:

• The built environment is highly exposed to climate risks, such as extreme weather events and rising sea levels.
• MSCI's Climate Value-at-Risk (VAR) measures real estate companies' financial exposure to climate risks.
• Coastal and low-lying assets may face up to a 20% depreciation due to climate impacts.
• Climate change poses the greatest risk to real estate, requiring climate resilience and adaptation strategies.

Net-zero movement and tracking carbon emissions:

• The real estate sector is increasingly focused on achieving net-zero carbon emissions.
• Tracking carbon emissions throughout the real estate value chain involves assessing embodied carbon from construction materials and operational emissions from usage.
• Compensation of residual emissions is also important.

Whole life carbon approach and stakeholder involvement:

• ESG data management in real estate is complex, involving multiple stakeholders and considerations throughout the business.
• Building and construction contribute significantly to global carbon emissions.
• Decarbonization of materials is crucial for emission reduction, impacting procurement and resource management policies.

Concerning the EU taxonomy, there are specific requirements for buildings constructed prior to December 31, 2020. Firstly, these buildings should have at least an Energy Performance Certificate (EPC) with a class A rating. Alternatively, they should fall within the top 15% of the national or regional building stock when considering their operational Primary Energy Demand (PED).

Compliance with these requirements must be supported by evidence that compares the building's performance to the national/regional stock built before 2021. Additionally, it is necessary to differentiate between residential and non-residential buildings.

Top social data challenges

Occupational health and safety of construction workers is a major issue in an industry with a large network of contractors and subcontractors. The many layers of subcontracting makes it difficult to detect modern slavery in the labour force.

On the end-use side, designs built with health and wellness concepts in mind require data on:

• indoor air quality,
• ventilation,
• comfort,
• community, etc.
• and their impact on occupant wellbeing.

These aspects are harder to measure and define due to their subjective nature, although industry scoring frameworks or certifications exist to provide guidance on managing the data.

Top governance data challenges

Strong governance of ESG data is the biggest data challenge for corporate governance, and for that matter, all industries. Data collection processes throughout the entire real estate value chain, accuracy, and impartiality of information, ownership, and accountability.

Data is needed for decision-making to drive compliance and risk management, and the challenge lies in design and implementation of an effective data management strategy.

How we help you

• We guide you through the various real estate sustainability benchmarks and frameworks to understand which works best for your business.
• We simplify the collection of ESG data in your organisation by offering one central platform and integrations into ERP, HRM, CRM, EMS etc., to automate data collection.
• We facilitate data collection from your suppliers, contractors, and tenants, ensuring relevant information arrives in a complete and accurate manner. We will handle the burden of information exchange with multiple stakeholders.
• We help you complete the information requests from investors and guarantee the protection of business-critical information, for example about sensitive business strategies.