Green building, sustainability and ESG practices in real estate

By Mike Juru | Sep. 20, 2024

The Zeitz MOCAA in Cape Town, South Africa

The business community is not immune to the vagaries of climate change, environmental degradation and social responsibility.

Population growth is not making it easy, as the pressure keeps mounting for further development of real estate, which accommodates business operations and is at the centre of human survival.

The sector is poised for transformation.

With buildings accounting for a staggering 39% of global carbon emissions, the shift towards sustainable real estate is inevitable and no longer a nicety but a necessity.

As the real estate industry evolves, three key concepts have emerged as essential considerations for developers, investors, and occupants.

These are green building, sustainability, and Environmental, Social and Governance (ESG) practices.

While often used interchangeably, these terms have distinct meanings and implications for real estate.

The convergence of the three concepts is revolutionising how we design, construct, and interact with the built environment. In this article, we will delve into the intricate interplay between these three pivotal elements.

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We will explore how forward thinking developers, investors, and occupants harness the power of green building, sustainability and ESG practices to create a more resilient, responsible and regenerative built environment for future generations.

Further, we will explore the similarities and differences between green building, sustainability and ESG practices in real estate and comprehensively explain their roles in shaping a responsible and sustainable industry.

Firstly, I will provide a high-level outline of the concepts’ development and significance in real estate.

Green building is the design, construction, and operation of buildings that minimise environmental impact. It originated in 1990 with the early adoption of green practices and became mainstream in the 2000s, when growth was witnessed. Currently, there is widespread adoption and continuous innovation.

Its significance to real estate is reduced environmental impact, improved occupant health and productivity, increased property values and rental incomes and compliance with regulations and standards.

Sustainability can be defined as meeting present needs without compromising future generations’ ability to meet their own needs. The concept emerged in the 1980s and the 1990s, with increased focus on environmental sustainability witnessed.

In the 2000s, there was a deliberate integration of social and economic sustainability. In the present day, there is a holistic approach to sustainability.

The significance in real estate includes long term thinking and responsibility, a balanced approach to economic, social and environmental factors, enhanced reputation and stakeholder trust and improved risk management and resilience.

ESG is defined as the consideration of non-financial factors in investment decisions and business operations.

The concept emerged in the early 2000s, and in 2010, there was increased adoption and mainstream recognition. Presently, there is integration into investment decisions and business operations.

The significance in real estate includes a comprehensive approach to risk management, improved transparency and accountability, enhanced reputation and stakeholder trust and better alignment with investor values and regulatory requirements.

In short, green building focuses on environmental sustainability, while sustainability considers the broader impact on society and the environment.

ESG takes a comprehensive approach to non-financial factors, including ESG aspects. The significance of these concepts in real estate lies in their ability to reduce environmental impact, improve occupant experience and enhance reputation and stakeholder trust while also managing risk and aligning with investor values and regulatory requirements.

The similarities of all three concepts revolve around the prioritisation of reducing the environmental impact of buildings and developments.

The emphasis is on reducing negative consequences, with each concept aiming to minimise harmful effects on the environment, occupants and communities.

Green building, sustainability and ESG practices recognise the importance of creating healthy, comfortable indoor environments.

Integrating eco-friendly materials and systems promote using sustainable materials, energy efficient systems and innovative technologies and encourage a forward thinking approach, considering the potential long term effects of development and investment decisions.

Green building primarily focuses on the physical building and its operations, with emphasis on energy efficiency, water conservation and waste reduction.

Often associated with building certifications like LEED (Leadership in Energy and Environmental Design) or WELL (Well Building Standard) and others, green building typically addresses the building’s environmental impact during its operational phase.

Sustainability encompasses a broader scope, including social and economic aspects. It considers the building’s life cycle, community impact and stakeholder engagement, involves balancing economic, social and environmental responsibilities, and addresses the triple bottom line (TBL) of people, planet and profit.

ESG practices specifically address environmental, social and governance factors, focus on risk management, opportunity identification and stakeholder value creation.

They integrate ESG considerations into investment decisions and business operations, and encourage transparency, accountability and long term thinking.

Risk aspects include reputational damage from poor ESG performance, regulatory risks from non-compliance with ESG related regulations, operational risks from environmental incidents or social unrest, financial risks from climate change or resource scarcity, governance risks from board composition or executive compensation.

The opportunities include improved brand reputation and stakeholder trust, enhanced risk management and resilience, increased access to capital and investment opportunities, innovation and competitiveness through sustainable practices, long term cost savings and resource efficiency.

By considering these potential risks and opportunities, real estate developers and investors can better navigate the complex landscape of ESG factors and make informed decisions that support long term sustainability and success.

By understanding the benefits and challenges, real estate developers and investors can better navigate the complex landscape of green building, sustainability, ESG practices and make informed decisions that support long term sustainability and success.

We will now contextualise and explore real life examples of the concepts, providing some case studies that highlight best practices and lessons learned in implementing green building, sustainability and ESG practices in real estate:

Masdar City, Abu Dhabi

This sustainable city has achieved a 50% reduction in energy consumption and a 30% reduction in water consumption.

The city’s success can be attributed to its integrated design approach, which incorporates green building materials, energy efficient systems and innovative technologies.

Solar Ark, Japan

This solar power generation facility has achieved a 100% reduction in carbon emissions. The facility’s success can be attributed to its innovative design, which incorporates solar panels, energy efficient systems, and advanced technologies.

Zeitz MOCAA, Cape Town

This museum is one of the most sustainable buildings in Africa, with a 60% reduction in energy consumption. The building’s success can be attributed to its innovative design, which incorporated natural ventilation, solar panels and rainwater harvesting.

Mokoya Lodge, Nairobi

This eco lodge has achieved a 70% reduction in carbon emissions and a 50% reduction in water consumption. The lodge's success can be attributed to its integrated design approach, which incorporated green building materials, energy efficient systems, and sustainable practices.

Vodafone Innovation Centre, Accra,

This office building has achieved a 50% reduction in energy consumption and a 30% reduction in water consumption. The building's success can be attributed to its innovative design, which incorporated natural ventilation, solar panels and rainwater harvesting.

These case studies demonstrate the benefits and best practices of green building, sustainability, and ESG practices in real estate. They also highlight the importance of integrated design approaches, innovative technologies and stakeholder engagement in achieving successful outcomes.

As the real estate industry continues to evolve, the interplay between green building, sustainability and ESG practices has become increasingly crucial.

By prioritising environmental responsibility, social awareness, and governance excellence, developers, investors and occupants can create a more resilient, responsible and sustainable built environment. The benefits are clear: reduced environmental impact, improved occupant health and productivity, increased property values and enhanced reputation and stakeholder trust.

As we look to the future, we must embrace this holistic approach, integrating green building, sustainability and ESG considerations into every aspect of real estate development and investment. By doing so, we can create a better built environment for generations to come, one that not only minimises its impact on the planet but also maximises value for all stakeholders. The time for action is now.

Let us build a sustainable future together.