The Concept of ESG
While ESG is not a new concept, its importance has escalated due to the urgent need to address climate change and social issues. With sustainability and environmental concerns at the heart of every business globally, the concept of ESG has gained traction. Companies continue to recognize the importance and benefits of incorporating sustainability measures and practices in their business.
Many companies are actively adopting environmental management, ethical governance, fair labour practices, and employee work-life balance policies, among other responsible initiatives. By incorporating ESG principles and practices, companies can enhance their long-term performance and mitigate social and environmental risks.
Simultaneously, investors — both institutional and individual — are now assessing and considering the environmental and social performance of companies and investments as indicators of value. ESG is being used as a criterion for evaluating and selecting investment opportunities by investors and donors, and serves as a means to minimize risk.
Glossary
- Environmental responsibility is concerned with the measures and practices that reduce environmental pollution, a pressing issue in Africa as climate change continues to rise.
- Social factors are concerned with the relations between the company and employees, stakeholders, clients, and the surrounding community, including issues related to human rights, education, and healthcare.
- Governance standards look at how the company is managed. Transparent and accountable governance is fundamental to ESG.
The African Perspective on ESG
Adoption of ESG in Africa has been dismal, with many companies at the early stages compared to developed countries such as those in America and Europe. Africa is one of the most resource-rich continents and home to a number of industries that depend on its natural resources, implying high exposure to environmental pollution and climate change. These industries contribute significant impacts on the environment and the communities therein, which calls for sustainable operation and management.
The young and growing African population is increasingly becoming aware of and championing social and environmental responsibility to achieve sustainability. ESG is not only an issue of compliance but also a competitive advantage for companies in Africa. Companies that adopt ESG principles and practices are better placed in attracting investors looking to invest in socially responsible and environmentally sustainable investments.
The continent boasts enormous natural resources, diverse culture, and a youthful population ready to embrace innovation. Despite a few challenges, Africa is expected to be a vibrant hub for sustainable development through integration of ESG practices in the near future.
ESG & The Built Environment
The Built Environment encompasses human-made structures, infrastructure, and spaces that make up the physical environment in which people reside, work, and socialize. It includes buildings, roads, bridges, public areas, and other constructions modified or created by human actions. It exerts a substantial influence on the health, happiness, and overall life quality of individuals who interact with it, making it a pivotal element in sustainable development and environmental preservation.
Within the Built Environment, ESG concerns concentrate on the ecological consequences of structures and infrastructure. These concerns encompass aspects like energy efficiency, water preservation, and the utilization of sustainable materials in construction. Property owners might aim to decrease their environmental impact by adopting energy-efficient technologies, harnessing renewable energy sources, or adopting water conservation measures.
Social aspects entail focusing on the welfare and security of occupants within the building, fostering workplace diversity and inclusion, and evaluating the building's influence on the nearby community. Property owners may endeavor to enhance indoor air quality and create healthier work environments for their staff, while also striving to minimize their building's adverse effects on the local community by mitigating noise and light pollution.
Governance factors encompass practices like transparency, accountability, and responsible decision-making during the construction, design, and operation of buildings and infrastructure. Property owners may aim for transparency in disclosing their sustainability efforts and the consequences of their facilities on the environment and the local community.
ESG Standards and Certification
To bring about meaningful enhancements in the built environment, key stakeholders like construction companies, architects, engineers, and contractors must monitor and assess specific ESG metrics. While there isn't currently a standardized framework for these metrics, various standards and certifications provide guidance. The most widely recognized standards in sustainable construction and design are:
- LEED (Leadership in Energy and Environmental Design): A green building certification program developed by the United States Green Building Council (USGBC) that evaluates buildings' sustainability and environmental performance based on criteria such as energy efficiency, water conservation, materials selection, indoor environmental quality, and innovation.
- BREEAM (Building Research Establishment Environmental Assessment Method): A sustainability assessment method developed by the Building Research Establishment (BRE) in the United Kingdom. It assesses the environmental performance of buildings across various categories, including energy, water, materials, waste, and ecology.
- EDGE (Excellence in Design for Greater Efficiencies): A green building certification system focused on making buildings more resource-efficient. It enables developers to quickly identify the most cost-effective strategies to reduce energy use, water use, and embodied carbon in materials. The strategies integrated into the project design are verified by an EDGE Auditor.
Common ESG Themes in the Built Environment
- Energy Usage: Keeping a close eye on energy consumption, including electricity, natural gas, and renewable sources, provides insights into areas where energy efficiency improvements can be made.
- Waste Generation: Tracking waste production and diverting waste away from landfills enables organizations to implement strategies for waste reduction.
- Workforce Diversity: Examining diversity metrics and fostering inclusive practices can lead to innovative solutions and improved profitability.
- Community Engagement: Engaging in corporate philanthropy and volunteer initiatives strengthens ties with the community and contributes to social responsibility.
- Wellness: Corporate wellness programs have a positive impact on employee health and productivity, reducing absenteeism and boosting morale.
- Governance: Robust governance policies ensure transparency and accountability, aligning with self-identified ESG objectives.
Our View
ESG is rapidly becoming a critical aspect, emphasizing sustainability, social accountability, and responsible choices in the construction, design, and operation of structures and infrastructure. Embracing a comprehensive approach to ESG enables property owners and other parties involved in the Built Environment to play a role in advancing a more sustainable and socially responsible future.
The connection between ESG and the Built Environment lies in how the planning, construction, and maintenance of physical surroundings can directly impact the environment, society, and governance. Factors such as energy use in buildings and transportation systems, the quality of life in communities, and the transparency and accountability in construction processes all have a role in determining ESG performance.
ESG within the Built Environment offers a framework for assessing and enhancing the sustainability, social impact, and governance of physical environments. This framework allows companies to use ESG metrics to monitor and enhance their environmental sustainability, decrease carbon emissions from buildings and transportation systems, enhance the well-being of employees and communities, and promote transparency and accountability in their business operations.
Compared to other industries, ESG holds particular importance in the Built Environment due to its direct influence on the physical environment and societal well-being. Furthermore, as society places growing emphasis on sustainability and social responsibility, ESG performance in the Built Environment sector becomes increasingly vital for attracting investors, customers, and stakeholders. Companies in the Built Environment sector must proactively address ESG concerns to remain competitive and build trust with their stakeholders.
Source: ESI Africa, International Labour Organization, PWC and Sterling Real Estate Advisory