ESG : Definition

29 January 2024
2 min

In the jungle of standards, regulations and other incentives, the ESG approach is intended to be comprehensive. Adapted to all companies, its application in the property sector is particularly useful.

While some organisations began to exclude companies whose activities ran counter to their values from their investment portfolios as early as the 1960s, it was in 2004 that the UN, under the leadership of Kofi Annan, laid down the framework for ESG criteria. His appeal to the heads of the major financial institutions to integrate ESG issues into the financial markets had a major impact.

What does ESG mean and what are the three pillars of ESG criteria?

ESG stands for Environmental, Social and Governance criteria, which are taken into account in the extra-financial analysis of companies, to measure the progress of their socially responsible management. More specifically, the three pillars on which this analysis is based involve assessing :

From an environmental point of view: the reduction of greenhouse gases, the prevention of environmental risks and waste management;

In social terms: respect for employees' rights, the subcontracting chain, accident prevention, staff training and the quality of social dialogue;

Governance: the independence of the board of directors, the presence of an audit committee and the management structure.

This comprehensive analysis puts a company's financial performance and its environmental and social impact into perspective. The idea is obviously to change the perception of shareholders and stakeholders: a company can no longer be satisfied with presenting excellent financial results. Its ability to address contemporary social and environmental challenges must become as important as its profits.

ESG strategies applied to the construction sector

Valid in all sectors and all sizes of company, the implementation of ESG strategies is a priority for the construction industry.

Why it is important to apply ESG criteria to real estate

The construction sector is responsible for 43% of energy consumption and 23% of greenhouse gas emissions in France. So it plays a major role in our country's environmental impact. Applying ESG criteria to the real estate sector is therefore a priority to significantly and sustainably reduce its negative impact.

Regulatory issues driving the adoption of ESG strategies in the building sector

Since the Grenelle II Act of 2010, any company with more than 500 employees, any structure listed on the stock exchange or any company with an annual turnover in excess of €100 million has been required to submit extra-financial reports. This includes details of the company's ESG commitments.

In 2020, the European Commission adopted the European taxonomy. This is a system for classifying economic activities to identify those that are environmentally sustainable. The aim is to guide and mobilise private investment towards companies that are "virtuous" in this respect, in order to achieve climate neutrality by 2050.

Numerous standards and regulations require the property sector to take this issue into account. For example, since 2021, new buildings have had to comply with the RE2020 standard, which requires the use of bio-sourced materials and energy-efficient consumption, among other things.

Regulations and stakeholder expectations are encouraging the adoption of ESG strategies in real estate. Government policies, aimed at sustainability and responsibility, and the growing awareness of ESG among investors, occupiers and consumers, are encouraging this trend.

These are all rules and incentives that ESG criteria cover perfectly.

The impact of ESG criteria in the building sector

Striving for excellence in ESG criteria has many benefits for the community and the planet:

- Environmental impact: sustainability, environmentally friendly construction and building management practices. This means reducing the carbon footprint of buildings, minimising waste and preserving natural resources.

- A social impact: compliance with ESG criteria promotes social inclusion, creates healthy and safe living spaces and meets occupants' expectations.

The benefits of applying ESG strategies to property

Beyond these fundamental advances, investing in ESG real estate also brings specific advantages:

The guarantee of being in phase with, or even ahead of, regulatory incentives and obligations;

Increased asset value: "green value" is becoming increasingly expensive. According to a CIBRE study, this means rents are potentially above the market average, easier to sell or resale, and have higher transaction prices.

The Wattsense solution allows you to effectively optimise the performance of your buildings while keeping costs under control. By allowing you to take back control of the technical equipment in your buildings, whatever their size, condition or use, you can rapidly improve their energy efficiency, maintenance and the comfort of their occupants. Request a demo to find out more.