Article | Creating Resilience
The true ROI of embracing ESG in today’s business world
There is no future for ‘business as usual’.
August 4, 2022
The message was clear: “The World Economic Forum estimates that more than 50 percent of global GDP is dependent on nature,” says Griffin. “All organisations to varying degrees are dependent on the health of the natural world and so therefore, there is no future for ‘business as usual’.”
Tan echoed the same sentiments explaining that ESG was no longer just a product of altruistic reasons. “ESG is very much investor led and the money is talking very loudly. We need to be the problem solvers for various issues that is causing a lot of risk.”
What is ESG
Environmental, Social and Governance (ESG) is underscored by the three Ps: Planet, People, and Processes. It also addresses how today’s investors and corporations are applying non-financial factors and social goals to identify risks and growth opportunities. ESG professionals currently saturate multiple environmental and social industries from carbon to energy efficiency to sustainable agriculture. Tan explained that it even extends across ESG finance reporting, governance, legal and compliance.
“Just relating that back to finance industry, in 2006 the Principles for Responsible Investment (PRI) were launched at the NYSE, which basically links doing good with financial performance.
“And now, so many studies show us impact investing gives us the same returns as non-impact investing. You’re not going to get lower returns because you’ve invested with a conscience.
“I think in the future we’ll see that if we do invest in the right things that make the world a better place, we should see higher returns because there’s so much risk with regards to making a negative impact on the environment and a negative impact on society.”
Why implement ESG
The world needs problem solvers and partnerships, which includes technology, according to Tan. With climate change risks, resource scarcity and social unrest all at our doorstep today, it’s imperative to look after society and its people. Failing to take the necessary steps will accelerate income inequality and crime in society, resulting in a lower quality of life for the whole population.
“A lot of our investors are saying ‘What can we do to show what we are doing at the asset level? And for our clients, we’re also hearing ‘What can I do to attract the larger pension funds because they are demanding better ESG performance.’
“There is so much climate risk. Floods and storms are increasing in frequency. In some areas, a one in 100-year storm is happening every five years,” says Tan.
“All real estate assets are vulnerable to climate risk, and this affects insurance premiums. Approximately one quarter of the Gold Coast is uninsurable because of flood risk. And it is these asset risks that brings about huge financial risks.”
In the commercial real estate space specifically, there is immense potential for implementing ESG practices. Times have moved on from green buildings and energy efficiency being the gold standard of corporate sustainability.
“These days we’re talking about embodied carbon, going net zero and treating people as valued assets - the ‘S’ in ESG,” says Tan.
“People matter now – employees, future employees, and the community at large. Retention is a huge issue although our clientele gains much commercial value from their physical assets, they are finding hard to find and retain good talent and make a true and lasting change in our community.”
It is for this reason that she believes firms need to be positively contributing to society and therefore offering a workplace that people want to work for to make an impact.
“Corporations now earn a lot of money and have a lot of power. With that power comes great responsibility and there are some companies taking their corporate responsibility seriously and trying to be better corporate citizens. This does also bring you more tenants, consumers and talent.”
How to implement ESG
CBRE has established its own initiative to achieve net zero carbon emissions by 2040. This commitment encompasses carbon emissions from CBRE’s own operations and the properties it manages for investors and occupiers, as well as indirect supply chain emissions.