When it comes to commercial real estate, there is now a new framework that assesses how a business manages its risks and opportunities created by shifts from market to non-market conditions. This is called the ESG, or Environmental, Social and Governance framework. According to real estate companies in Sri Lanka, the criteria under this framework includes:
· Environment: How a company impacts the environment and what its role in environmental issues is.
· Social: How a business manages its relationships and crates value for its stakeholders.
· Governance: A company’s management philosophy, practices, controls etc.
Recent environmental concerns have brought about a surge in tracking ESG factors when it comes to real estate, with investors being asked to divulge, often publicly, its activities and impact in terms of energy and water usage, carbon emissions, and other environmental issues. While many corporates are opposed to this kind of disclosure, it does have its benefits too, such as:
· Improved corporate reputation by adopting ESG conducive strategies and policies.
· Improved corporate culture.
· Enhance risk reduction and opportunity management.
· Improve intrinsic value.
Of course, there have been instances where corporates have been found to have misinterpreted or “adjusted” their actual values during disclosure, which has led to extreme stringent checks for accuracy of all data and information disclosed.
How does real estate affect the environment?
While it may not be apparently so, real estate has a huge impact on the environment, from carbon emissions to increase energy consumption, as well as pollution. When someone invests in land or a house for sale in Nugegoda or even a villa for sale in Sri Lanka, from the point of construction of a new building to its demolition stage years later, these activities have a profound impact on current environmental issues, which is why there is a lot of talk regarding his problem within the industry itself.
· Construction Phase
o Natural habitats are getting destroyed on a daily basis because of land requirements for new constructions, driving wildlife into urban areas.
o During the construction phase of a building, it uses a lot of materials such as sand, rock, wood etc, which has accounted for a huge percentage of global energy consumption, as well as process-related emissions that are bad for the environment.
o Extensive air pollution is caused both from exhaust fumes of machinery and construction vehicles, causing a disturbing rise in respiratory diseases in highly populated areas.
o Water pollution is caused by chemicals and toxic liquids which are absorbed into the groundwater or washed into other bodies of water like rivers, lakes etc.
o Noise pollution cause by the use of heavy machinery.
· Use-Phase
o Both residential and commercial properties use high amounts of energy for heating and water heating, HVAC, lighting etc.
o They are also responsible for around 1/3rd of greenhouse gas emissions.
o Maintenance of buildings and structures is similar to the construction phase, where raw materials are needed for the same, resulting in process-related emissions and extensive use of non-sustainable resources.
· Demolition Phase
o Heavy energy consumption and use of resources to demolish a building.
o Demolition causes a higher level of pollution, especially air pollution from dust and exhaust fumes.
o Higher levels of noise pollution.
o Higher amounts of waste products being produced.
What can be done to reduce this environmental impact from the real estate industry?
Now we know what kind of impact the real estate industry as a whole has on the environment, so what can be done about it?
· Using sustainable building materials: It is important for the construction industry to look into using alternate, sustainable materials for construction of houses and buildings, such as wood, bamboo, timbercrete etc.
· Adopt waste management and recycling processes: Efficient waste management and recycling options are essential if the real estate industry wants to make a positive impact in terms of the current environmental issues. Reusing of certain material should be considered in order to minimise landfills.
· Predictive maintenance: Reduction of the resources and costs involved with maintenance lies in predicting what is needed to be done before it actually happens. By properly monitoring equipment and devices and analysing this data, professionals can identify damages and areas that need repairing or maintenance.
What are the social impacts of the real estate industry?
One of the biggest impacts that the real estate industry has on society is a whole is the problem of offering affordable housing to everyone. While we would all like to see this happen in every community of the world, the reality is that it doesn’t. In recent times, government policies and private funds have been working towards resolving this issue, but it has faced many barriers along the way.
Some of these barriers to affordable housing include:
· Poor quality construction: With rising material costs contractors have been found to use sub-par material in order to make them “affordable”, which have resulted in poor quality constructions and housing.
· Limited land: This is one of the major issues that the affordable housing plan is facing. With increased populations and the requirement for housing increasing day by day, there is a very limited access to available land. As such, this also has an impact on the environment, with people taking over wildlife habitats and filling up marshy land causing flood situations in many areas.
· Increased inequality in incomes: With economies going from bad to worse in may areas of the world, this has caused a huge inequality when it comes to earnings and incomes, meaning that more and more people are unable to afford housing.
· Rents taking up a bigger proportion of income: With no housing of their own, people are forced to live in rental properties, with bugger portions of their income being allocated for this with increasing rents.