As the world grapples with the realities of climate change, sustainability is gaining ground in the business world.
The real estate sector is no exception, given that buildings are responsible for around 18% of greenhouse gas (GHG) emissions in Canada.
Against this backdrop, sustainable finance is emerging as a new standard in the real estate industry, forcing players in the field to turn the corner without further delay.
However, the adoption of greener practices is proceeding at varying speeds.
The integration of environmental, social and governance (ESG) criteria into business practices is gaining ground in Canada’s real estate sector.
However, perceptions of its importance vary among market players.
While some are reducing their commitment in this area due to current economic pressures and payback periods, others recognize ESG issues as strategic levers for creating value.
The benefits associated with more sustainable buildings are becoming increasingly evident.
A better quality of life for occupants and reduced operating costs thanks to energy efficiency are just some of the tangible benefits for companies that take a proactive approach to sustainability and the environment.
Regulation as a driver of change
It has to be said that the pressure is on with the evolving regulatory framework.
The 2015 adoption of the United Nations’ Sustainable Development Goals (SDGs) and the Paris Climate Agreement has prompted governments around the world to review their requirements.
Canada has followed suit.
Across the country, municipal governments are adopting policies that make environmental, social and governance (ESG) standards mandatory in the real estate sector.
Montreal, for example, has adopted a roadmap for decarbonizing its buildings by 2040.
Toronto and Calgary have also adopted sustainable building policies.
The adoption of Canada’s National Energy Code for Buildings (NECB), in force in several provinces, also marks a move towards mandatory consideration of ESG factors.
Real estate companies are also faced with new reporting and regulatory requirements.
These include the standards set by the International Sustainability Reporting Standards Board (ISSB) in 2023.
These will have a direct impact on listed companies, but their influence will also be felt by unlisted companies, not least through the sustainability and climate-related information that some tenants will be seeking from property owners.
In their transformation towards sustainability, real estate companies are required to publish reports detailing their ESG performance in accordance with international standards, such as the Global Reporting Initiative (GRI) guidelines or the Principles for Responsible Investment (PRI). Measuring progress, however, can prove complex, as some industry players deplore.
Added to this is pressure from institutional investors who, aware of the risks associated with unsustainable practices, are increasingly integrating ESG criteria into their investment decisions.
Companies that fail to meet these standards risk being excluded from investment portfolios, with potentially significant financial repercussions.
Taking action
To accelerate their transition to a more sustainable approach and effectively integrate ESG criteria, companies in the real estate sector must first carry out a thorough assessment of the risks and opportunities associated with ESG criteria for their real estate portfolio.
This includes identifying climate (environmental) risks, social (social) impacts and governance challenges that could affect asset value.
This will enable the development of an integrated ESG strategy that defines clear and measurable sustainability objectives.
ESG criteria must be fully integrated into the company’s decision-making processes, from the design of real estate projects to their day-to-day operation and management.
The implementation of measurement systems will be essential for transparent reporting on progress.
Companies also need to invest in training and skills development for their staff to familiarize them with ESG issues and industry best practice.
This can involve awareness-raising programs, training sessions and professional certifications focused on sustainability.
Navigating the complexity of ESG criteria, standards and disclosure frameworks
In a context where capital markets are demanding greater disclosure of environmental, social and governance (ESG) factors, companies must be more transparent than ever when it comes to extra-financial information.
To meet their obligations effectively, however, they face a number of challenges.
First, they need to determine which ESG factors are relevant to their business model.
What are the most important issues for the organization and its stakeholders?
The list can be long, from building energy efficiency to employee health and safety, community relations and sound governance structures, to name but a few.
Reliable and accurate data collection systems for all identified elements are also required for comprehensive coverage of ESG performance.
Investors are looking for accurate data, backed up by clearly defined objectives.
To capture their interest, it is also crucial to focus on information that has a direct impact on the company’s financial situation. Many deplore the fact that data is too often not consistent and comparable.
Choosing the right reference framework for sustainable development
Companies must then select the appropriate disclosure frameworks, which is no small task. As they multiply and constantly evolve, it’s easy to get lost. Our team of sustainable finance experts has prepared an overview of the main frameworks and how they work. It is also there to guide you along the way, and to offer you some recommendations for tackling this major challenge. We see real long-term value and believe in sustainable economic growth, which is why Demers Beaulne also has reduction targets. Follow us to learn more about our projects and best practices as a company. View disclosure frames
