In short, the term ESG (Environmental, Social and Corporate Governance) summarizes all of the criteria that a (capital) investment must meet in order to be considered sustainable. It refers to what’s known as the “intangible assets” within the enterprise, meaning that ESG criteria present their own set of difficulties when it comes to evaluation (mainly because it’s hard to track and monitor the components that make up a robust ESG strategy).
To break it down:
Environmental relates to the reduction of energy consumption through efficient building technology or the responsible use of raw materials to reduce pollution, greenhouse gas emissions or generate energy efficiencies.
Social describes aspects of occupational safety and health protection, diversity or social commitment, including compliance with high standards of occupational safety and the creation of user-friendly areas.
Corporate Governance refers to responsible corporate management. Ie: adherence to compliance guidelines and close consideration of human rights.
ESG compliance within real estate doesn’t just mean that properties are sustainable, it also enhances their long term value. In short, the ‘better’ the building, the higher its value. However, in this instance, a better building doesn’t refer to having nicer doors, brighter rooms or higher ceilings: ‘better’ refers to how good the building is for both people and the planet.