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The ESG Effect in Real Estate

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The pandemic has revealed complexities that the world could not fathom earlier. It changed our understanding of live-work-play dynamics overnight. It showed us how underprepared we were in dealing with a so-called tech-savvy modern world crisis. It made us aware of our environmental impacts when the onset of “the great reset” meant the reappearance of cleaner skies and clearer rivers and the arrival of flora and fauna that the harsh effects of urbanization had diminished. The pandemic made us question some stark plural realities. 

We felt the disruption of balance at various scales in almost every organization. From now on, it will be about ascertaining, redefining, and re-inventing the path ahead to incorporate the present reality while considering the global future. Disruption of supply chains, lack of access to essentials, ecological deterioration, the work-life imbalance created ripples of awareness that was perhaps dismissed quickly before. Environmental, Social, and Governance (ESG) analysis was not the aftermath of the pandemic; it has existed earlier with considerable focus by specific organizations. But the great reset has ushered in the opportunity to pause, reflect and prioritize the impacts of a non-traditional mode of investment. The shift from addressing finance as the only form of capital to superscribing the Environmental, Social, Governance (ESG) as a form of outlay has been a progressive step. 

It is essential to deconstruct and look at the objective to understand the aspect of an ESG investment. Moving towards a zero environmental impact model for any organization at this stage is non-negotiable. The world is dealing with the effects of climate change rapidly and daily in multiple forms—floods, droughts, unpredictable weather conditions, loss of biodiversity, resource depletion to name a few. Industries have been the biggest catalyst in environmental depletion through the emission of greenhouse gases, reckless destruction of green cover, exploitation of resources, and unprecedented waste generation leading to pollution. The current situation necessitates to curb detrimental impacts by investing in environmental welfare. Therefore, addressing ecological wealth sustainability becomes a primary investment that all organizations must target. It is not simply about reducing ecological pressure but also preserving the existing biodiversity.  

The effects of the climate crisis are unequally distributed across multiple stakeholders, therefore bringing the concept of social currency. Since social capital constitutes the building blocks of any organization, it would be devastating to consider them as a dispensable part of the investment. Organizations must address equal representation through employee diversity, conducive working conditions, prioritizing health, and social well-being at all costs. Addressing grievances, opinion polls and community engagements, and employee involvement in all decision-making processes indicates a robust social investment. Apart from that, organizations should strive to fund social causes like rural education, abolition of slavery and child labour and play an active role in philanthropic pursuits. 

The world has moved on from the concept of equality to equity, ensuring that the entities which are more effected by environmental damage be offered more funding than the less deprived, thus eventually placing everyone on the same rung of the ladder.

Governance becomes an overarching scheme that becomes imperative to address the Environmental and Social investment schemes. Understanding of the ethical manifestations that would supervise the organization is of utmost importance—ensuring that the executive composition is diverse and not autonomous. Pursuing control points to avoid misanthropic practices from overtaking an organization, compliance with tax strategies, and understanding of risk management associated with each project are prioritized in an organization. The government sector also protects employees and shareholders interest with the fair provision of compensatory mechanisms. 

The ESG model of investment at this stage is hardly optional. It is the need of the hour to ensure a vital step towards the recognition of the ecological, social, and governance-based fractures and an attempt to mend the same. Investments cannot be viewed only from monetary margins anymore but as a holistic step. Profits are no longer singularly financial pursuits. If companies do not contribute towards socio-ecological well-being, they have failed to communicate the sobriety of global concerns. 

About the author:

Taha Ansari, Colliers India

– By Taha Ansari, Managing Director, Project Management (North India), Colliers 

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