How real estate sector can tap into ESG agenda to make an impact

By Daniella Nyakuraya

Since the Environmental, Social, and Governance (ESG) concept started taking shape, there have been various campaigns encouraging businesses globally to adopt more sustainable business practices, pushing them to shift their attention from product and service delivery to sustainability. Despite ESG reporting not having gained much traction in Kenya, we are gradually incorporating it into company standards. The Kenya Companies Act of 2017 requires directors of companies to examine ESG matters that could impact the company’s performance in the future.

There have also been various initiatives championing the ESG agenda, some specific to the real estate sector, like the Global ESG Benchmark for Real Assets (GRESB), which establishes standards for evaluating the environmental, social, and governance (ESG) performance of real assets, including real estate, promoting global sustainability in the sector.

The Kenya National Climate Change Action Plan, International Finance Corporation (IFC) Performance Standards on Environmental and Social Sustainability, UN Sustainable Development Goals, and Global Reporting Initiatives Standards are also policies that businesses in Kenya can use as ESG benchmarks.

The ESG agenda is a trend that is increasingly shifting the trajectory of sectors in Kenya and to stay relevant, attract investors, and make an impact, real estate companies should concentrate their efforts on sustainability integrating ESG in their business and CSR practices. The real estate sector in Kenya can focus on the ESG pillars to drive sustainability enabling them to make an impact in the following ways:

Social Impact

The social consideration under the ESG agenda encompasses the development, management, and investment in properties that generate measurable social impact alongside financial returns and bring value. ESG focuses on creating sustainable communities that thrive economically, socially, and environmentally. By considering factors such as affordable housing, access to essential services such as hospitals and shopping centres, and environmental sustainability, real estate developers and investors can contribute to the long-term success and well-being of the communities they serve. By investing in projects that tackle issues such as homelessness, healthcare accessibility, education, and job creation, developers become a powerful tool for positive change. Social impact in real estate presents an attractive opportunity for real estate companies to attract investors seeking both great financial returns and having a positive influence on society.

A good ESG strategy prioritizes the development and operation of buildings that are safe for occupants and the surrounding community. To inform this strategy, developers should take keen consideration on building safety, health codes, emergency response plans, and the needs of the community.

Environmental Impact

The increasing demands in the last decade to reduce greenhouse gas emissions and manage climate change have led to a global call for greener, more sustainable built environments. The IFC estimates that green buildings represent a significant amount of investment opportunities worldwide which are anticipated to be worth USD 24.7 trillion by 2030.

The real estate sector has been a significant contributor to greenhouse gas emissions. To mitigate this impact, there is a growing emphasis on energy efficiency and green building practices. For developers seeking to apply ESG in their company strategies, the focus should be on addressing how to reduce harmful emissions that negatively impact the environment. Building codes, certifications like LEED (Leadership in Energy and Environmental Design), and energy performance assessments are becoming key considerations in real estate development. Energy-efficient buildings not only reduce carbon emissions but also offer cost-saving solutions for occupants through lower energy bills (aided by intelligent responsive buildings that turn off lights when not in use) making them attractive for investors and tenants.

Further, the efficient use of resources and responsible waste management are critical for sustainable development. Water-saving technologies, rainwater harvesting, recycling systems, and waste reduction strategies should be incorporated into real estate projects to minimize environmental impact.

It is imperative to acknowledge that there are already efforts by some real estate companies in Kenya to ensure that they positively impact the environment. These efforts are observed by the presence of buildings with natural ventilation and natural lighting within them. Moreover, some of the real estate developments have photo-voltaic (PV) panels that allow for sustainable electricity generation. Real estate companies are also integrating the use of paints, adhesives, sealants, and carpets that have low volatile organic compounds (VOC) emissions and are also incorporating sewer treatment plants within their developments to promote water recycling.

Governance Impact

Real estate companies in Kenya should ensure the safety of employees and the general public during construction phases. As a major employer, they should be keen on the needs of their employees, both in the office and in the field, ensuring they cover issues such as diversity, executive pay, tax management, and business ethics. An inclusive governance strategy coupled with regulatory compliance attracts investors therefore leading to the financial growth of a company.

Commercial real estate firms that have sophisticated ESG strategies can increase asset value, lower operating costs, and unlock sustainable financing opportunities to grow the company. The adoption of ESG strategies can improve corporate reputation and culture, enhance risk reduction and opportunity management, and increase intrinsic value.

As businesses, let us all consider not just making ESG a plan but an attainable goal. Let us impact our communities and environment one pillar at a time, and eventually, we will be the change the world needs.

Daniella Nyakuraya is the manager at Safaricom Investment Co-operative Housing Unit.