JPM spoke to Akshai Rao at Yardi about the rising importance of environmental, social, and governance (ESG) principles among commercial real estate owners and investors and the impacts of this movement on real estate managers. ESG has been on the rise for several years, but it gained remarkable positive momentum from both the disruptions to normal operations triggered by COVID-19 as well as a renewed urgency in the fight against climate change. Akshai weighs in on these issues.
Why do you think ESG has become so important for some real estate owners and investors, and where do you see this focus on ESG taking the industry?
Akshai Rao: I think there are three different factors driving a renewed interest and focus on ESG. The first is that investors themselves are placing more emphasis on ESG initiatives, ranging from environmental sustainability to social equity. With GRESB* becoming the de facto benchmarking standard, there is now more uniformity in how to report on the current state of affairs, as well as initiatives to enable future advancements.
Secondly, there is now more tenant engagement around their own corporate footprints, which is driving more interest and expectation in the sustainability profile of the buildings in which they hold leases.
And finally, there seems to be a broader regulatory push being driven both by local governments upward and the federal government downward. If this push continues, it will be critical for owners/investors and tenants to collaborate on tracking both demand and consumption, as well as on taking actions to reduce consumption.
How can property managers carry out ESG principles at their properties? What tools are available to turn ESG into concrete actions?
AR: When we speak with property managers and operations teams, we hear the desire to have transparent policies in place that outline specific goals and initiatives. Property managers are doing some really interesting things on their properties around sustainability and inclusiveness. What is now needed across portfolios is sharing these best practices and coupling them with insights gleaned from data. Depending on the objectives, this data can be extracted from the rich information available on utility invoices as well as through metering and technologies that integrate with the Internet of Things (IoT).
What do you see as the connection between the rise in automation and the growing importance of ESG?
AR: We are definitely seeing this connection, especially as it relates to HVAC, water, and indoor air quality (IAQ). From our perspective, the adoption of IoT and automation, especially in commercial properties, needs to result in something actionable, such as proactive work orders. With HVAC, water, and IAQ, there are valuable use cases enabled by IoT and automation that will support both ESG and risk mitigation measures.
What has this growing focus on ESG meant for Yardi as a company and for its various products and customers?
AR: It has been very instructive speaking with our clients on their specific ESG plans, which in turn is helping us evolve the Yardi Pulse Suite. We continue to extend our core competencies around utility invoice processing, ENERGY STAR benchmarking, and in-building technology.
Our aim with the Pulse platform is to enable portfolio-level insights and reporting as well as tactical property-level actions. The Pulse Suite is already being used in thousands of properties across real estate markets. As our clients continue to progress their ESG initiatives, we intend to support them through our development roadmap.
*Formerly the Global Real Estate Sustainability Benchmark. GRESB assesses ESG performance for real estate investment portfolios.