The Rising Tide of ESG Goals for Real Estate Companies

In March, the U.S. Securities and Exchange Commission (SEC) proposed rules to enhance and standardize climate-related disclosuresthat public companies make to investors, including climate-related risks and greenhouse gas emissions. At the “Real Estate Companies: The Front Line of Climate Change” session on day three of the 2022 ULI Spring Meeting in San Diego, moderator Christine Robinson, partner, sustainability and ESG services, for Deloitte & Touche, asked experts about the challenges and successes in mainstreaming environment, social, and governance (ESG) accounting and reporting.

With the proposed rules potentially passing as early as the end of this year, finding experts to help meet the new regulations will be a scramble, said Ben Myers, vice president of sustainability for Boston Properties. “It’s definitely a challenge because the nuances of what goes into the financial statement and how that is calculated are still very uncertain,” he said. “It introduces a whole new level of controls, process, formality, time, burden, and requirements for the sustainability team.”

“It is so broad, what the SEC is proposing,” said Carol Samaan, vice president, corporate counsel and ESG, for Healthpeak Properties Inc. “The timing of it is very hard. We file our Form 10-K about two and a half months after the end of our fiscal year. It is really hard to get all of that utility data rolled up, verified, audited by internal audit, assured by our external assurer, reviewed by the financial accounting team, and reviewed by the board by February 15. If you are working with a company that might have this obligation, start having conversations tomorrow, form a task force, even if these rules get delayed because of lack of legal challenges.”

“This is going to waterfall throughout the market,” said Jack Davis, director of RE Tech Advisors. “Your tenants who are corporations are going to be reporting this data, and they’re going to be going to their landlords on every single site and saying, ‘I need your data and I need your help quantifying this information.’ Same with institutional investors on the private side. They’re going to see what’s happening on the public side, what the REITs [real estate investment trusts] are doing, and they’re going to start asking the same questions about their development partners.”

Both Myers and Samaan reported success with green financing. “We’ve issued four green bonds, $3.5 billion overall in green bond financing,” Myers said. “At the beginning, the additional restrictions and reporting requirement costs were the concern. But it attracted a much larger pool of investors, and with more demand, we got a better, lower rate . . . about a five to 10 basis point advantage.”

“We issued our first two green bonds last year,” Samaan said. “We’re allocating the net proceeds to green buildings targeting LEED [Leadership in Energy and Environmental Design] Gold or higher. What was really helpful about the green bonds is that they put a focus on certifications. LEED went from being ‘nice to have’ to ‘we have a target now that all new development will be LEED Gold or higher.’ Green bonds gave us leverage to target that.”

Ramping up ESG in the built environment is a complex endeavor. “However, it’s also worth remembering the risk of not doing it,” Davis said. “That actually drives a lot more decision-making, in some instances, than the ROI [return on investment] of incorporating sustainability. If you’re going to not attract capital and not attract that tenant, or not even get in the tenant’s short list of buildings they will lease in because you didn’t do something, that’s the risk.”

RON NYREN is a freelance architecture, urban planning, and real estate writer based in the San Francisco Bay area.

Related: Sustainability Outlook 2022