You’re not imagining it: ESG is a hot topic.
From webinars, like this recent Multi-Housing News event featuring SmartRent’s Chief Product Officer, Mitch Karren, to other industry outlets, everyone is talking about ESG, including well-known corporations.
Recently, BlackRock committed 100% of its active and advisory portfolios to investments with ESG factors. Deloitte released data suggesting that half of all professionally managed assets will have ESG mandates by 2025.
ESG-aligned investments are expected to grow in value over time. Communities with high scores are also safer and healthier for residents. The benefits of ESG are numerous, which makes it the right time for multifamily and student housing communities to jump on the bandwagon now.
We will cover the topic in a multi-part series that will define ESG, explain how it is evaluated, how ESG relates to smart technology, describe how to get started and outline where it is heading in the future.
In this first post, we will discuss what ESG is and what you should know about its significance and evaluation. If you'd like to learn more about SmartRent's ESG alignment, don't hesitate to request a demo with us.
What is ESG?
ESG is a set of evaluation criteria for a company or entity that is based on social and environmental factors. The acronym stands for Environmental, Social and Governance, with each letter representing something important to a company’s overall score.
Often, environmental factors include waste management and how the company is actively reducing greenhouse gas emissions. Property managers can gauge the level of waste in their receptacles using waste sensor technology, enabling them to schedule service appointments accordingly. Reducing pickups can make a huge difference to a community's emissions.
Social factors typically encompass labor standards, cybersecurity, and health and safety for employees. Companies with high ESG scores tend to have a diverse workforce, maintain fair labor standards and have zero tolerance for harassment.
The "G" refers to the set of rules that govern decision-making within the company. Sometimes governance is overlooked in lieu of “E” and “S,” but according to S&P Global, poor governance factors can lead to massive problems, such as labor violations or cybersecurity scandals. That’s why governance is as important as the other two factors.
Why is ESG important?
Sustainable development is a growing need in our society. Political and business policies are shaped by environmental concerns, resulting in heightened scrutiny around the topic of eco-friendliness.
If you’ve heard of greenwashing, then you have an idea of how detrimental the practice is. NerdWallet defines greenwashing as the use of marketing tactics to make something appear more eco-friendly than it really is.
ESG can combat greenwashing by using data to make a verifiable case that the company or entity is actually practicing what it preaches.
Research also indicates that high ESG scores have a bounty of benefits for the company. Nasdaq asserts that companies with ESG measures in place enjoy:
Increased stock liquidity
Higher competitive value
Less negative attention from activists and socially-conscious organizations
Long-term, top-performing employees
There’s no doubt about it: a high ESG score can make your multifamily or student housing management company an industry leader.
How is ESG evaluated?
As of now, there is no standardized way to measure ESG. Financial institutions like Bloomberg, Dow Jones, and S&P Global have developed their own evaluation standards, but none of them are perfectly symmetrical.
Yet, there is common ground among evaluations: data. In order to achieve high ESG ratings, property management companies must have data as a paper trail for their auditors. The more detailed the information you have about how your communities manage waste, conserve energy, and the like, the better equipped you are to make the case that your portfolio is socially and environmentally conscious.
Another excellent way for operators to demonstrate their commitment to sustainability is through LEED certification. According to the U.S. Green Building Council, LEED is the world’s most widely used green building rating system.
Communities with LEED certifications give investors a trusted, widely-recognized stamp of approval that goes hand-in-hand with ESG. Plus, LEED-certified buildings save $1.2 billion in energy and divert 80 million tons of waste from landfills, among other benefits.
Stay tuned for Part Two
ESG may seem like a new concept, but it has gained momentum for years, and industry experts agree it is not going anywhere soon. The scoring system will soon become an important indicator of companies and assets that will experience long-term success.
Stay informed about ESG initiatives with SmartRent’s series on the topic. Next up: a look at how smart technology strengthens your case for ESG and makes it easy to capture the data needed for scoring. Read part 2 in our series here.
Finally, learn more about how to establish a successful, long-term ESG strategy with our third and final part in this series.
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