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Technology can address some of these new demands. Building Management Systems can be retrofitted with inexpensive, quick-to-deploy sensors to measure air quality and track density or provide opportunities to report problems like leaks or a messy restroom. Well configured dashboards can aggregate and store all this data to address reporting and compliance requirements. These dashboards track progress in improving interior environments, the performance of physical plant, efforts to lower carbon emissions. And they can be a key element in reassuring a nervous workforce who want to see genuine changes have been made to their offices before they go back.
“The real issue may not be when to reopen your office, but how to address the persistent health, safety and confidence issues of your workforce, which are impeding your organization’s recovery,” PwC wrote in a recent report.
If this wasn’t enough to deal with, a new pressure on ESG performance has emerged in the form of regulatory pressure from the European Union (EU) and a host of smaller jurisdictions from New York to Singapore to Stockholm. On March 10, the EU’s Sustainable Finance Disclosure Regulation took effect, lending ESG the force of law there. Starting this year, the financial institutions who own nearly half of all commercial properties in Europe and which hold in their portfolios significant percentages of virtually every publicly traded company in the world, must report publicly on 50 separate ESG metrics for all assets in their portfolios, with steep fines and reputation damage looming large for those who fail to meet the mark.
As with the EU’s General Data Protection Regulation (GDPR) introduced in 2016, the size and importance
of Europe means that its regulators will set the global standard, forcing firms from Sydney to Chicago to Cape Town to fall in line. The great owners of commercial
real estate assets – the Blackrocks, State Streets and Fidelities of the world – will feel pressure to conform, and that pressure will flow downhill to portfolio managers and building owners.
“Every active investment team at BlackRock considers ESG factors in its investment process and has articulated how it integrates ESG in its investment processes,” Blackrock CEO Larry Fink wrote to his firm’s investors last year. “By the end of 2020, all active portfolios and advisory strategies will be fully ESG integrated – meaning that, at the portfolio level, our portfolio managers will be
accountable for appropriately managing exposure to ESG risks and documenting how those considerations have affected investment decisions.”
In other words, get your ESG act in order, or the firm will dump you. These sentiments have only been accelerated by COVID-19.
“We can’t just say, ‘Welcome back’ and expect people
to pick up right where they left off,” says Don Gilpin, president of the International Facilities Management Association (IFMA). “Workspaces, just like restaurants and convention halls and hotels and other space, need to have evolved, and that evolution has to be ever-present and obvious to those inside.”
In the post-COVID world, the Sustainability Revolution will no longer be something for marketing teams to harness to burnish reputations or please activist tenants. Sustainability and the ESG metrics that measure it will be part of the new normal for global commercial and corporate real estate managers, with the price of failure measured in billions of dollars redirected to competitors who embrace and master the new landscape. Done manually, this could mean huge new staff costs and added risks. Technology can defray some of this, but it’s going to take more than a sensor to prove compliance on racial diversity or the gender makeup of the board of directors.
At the same time, local jurisdictions will demand data on how well CRE portfolios managed energy and water use, treated their customers, and paid their employees. The tragic and hard-learned lessons of COVID-19 will be part of this change. Are building owners maintaining a safe environment for tenants? Do they provide transparent, anonymous ways for occupants to register concerns about problems? Do leaks and broken fixtures get addressed quickly? From air quality, ventilation and CO2 buildup to the cleanliness of elevators, rest rooms and common areas, COVID-19 has supercharged the ESG movement.
Michael Moran is Chief Markets Officer
and Director of Risk & Sustainability at Microshare, a leader in Smart Facilities
data solutions. He has served in executive positions at some of the world’s best-known companies, including Control Risks, Roubini
Global Economics, the BBC, the Council on Foreign Relations and NBC News. He is author of three books and has won multiple Emmy awards for his documentary work.
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