ESG is establishing itself in the multi-family sector

Major multi-family developers and property managers have already integrated environmental, social and governance considerations into their plans and projects. ESG can impact financing and insurance costs, and how regulators, analysts, potential tenants and recruiters view their businesses. It is rarely specified which communities are funded or insured at this point, real estate advice RCLCO Managing Director Eric Willett says, but it considers projects where climate risk and resilience are an issue. Take coastal developments for example.

Also listen: How proptech can help bring the S and G into ESG

“The focus is likely to increase over the next few years, particularly as larger lenders push through their ESG commitments to downstream investments,” he predicted.

Is ESG on your radar yet? Here’s why it should be a top priority for every developer and manager.

ESG oriented resident

“The most forward-thinking companies are looking for ways to do more than just mitigate risk,” Willet said. “Rather, ESG can be a way to create value for all stakeholders: capital, community, tenants and employees.”

Consumer trend research shows the importance of ESG to the industry, noted Alison Johnson, associate vice president of program strategy at the National Council for Apartment Buildings.

“We anticipate that multifamily businesses will continue to adopt policies and practices aligned with ESG concepts,” Johnson noted. “A 2019 Accenture report shows that 53 percent of consumers will stop doing business with a company because of their actions or inactions on social issues and a year 2021 NielsenIQ Global Health & Wellness Survey found that 67 percent of consumers worldwide say they care about the health of the environment and the impact of their choices on the planet.”

These trends are being driven by Millennials and Gen Z, who together make up nearly half of the US workforce, Johnson points out. “Companies that ignore consumer and employee expectations risk their reputation and competitive performance in the process,” she warned.

Plants contribute positively to indoor air quality at The Conservatory at Cirrus and Cascade by Lendlease. Photo courtesy of LendLease

environmental considerations

The e-facet of ESG is not new to multi-family businesses and includes energy efficiency, waste management and water conservation, much of which is mandated by regulations. The increased public pressure and new opportunities are new.

“Each multifamily home we build is at least LEED Gold certified and earns Fitwel and ENERGY STAR certifications,” said Sara Neff, Sustainability Director at Len lease America.

While certification processes can be rigorous, there are other ways to look for sustainability in the eyes of potential employees and renters, she says. “To start with, I would recommend contacting your energy supplier [for] Free utility owners can benefit from it,” she said. “We also recommend starting with the Low Hanging Fruit retrofits, such as For example, adding LED lighting, upgrading your boiler and irrigation system, and switching to two-tier lighting in your stairwells. These smaller projects can be carried out while larger, more impactful actions are implemented.”

JLL Managing Director Lela Cirjakovic, Managing Director of a real estate and investment management company JLL remarked: “What started as ‘check the box’ sustainability has evolved into a conscious commitment to transforming the built environment, not just because it is necessary, but because it is the right thing to do,” remarked.

The market is also moving here.

With many states and cities banning gas lines to new builds, there are also opportunities to equip each unit with wellness-friendly induction cooktops and parking facilities with charging stations for renters’ electric vehicles.

“The technology is definitely ready for tenant garages,” said Joel Rosenberg, special projects manager at Rewire America.

He estimates each charger costs $1,000 per unit to buy and install, but suggests there may be government incentives for communities. With a growing percentage of the population opting for electric vehicles — including a 60 percent increase in the first three months of 2022, according to car and driverconvenient charging for tenants becomes an ESG-friendly selling point for a municipality.

“Health and sustainability are two sides of the same coin. The same qualities that make eco-friendly multifamily homes are also healthier for tenants,” he noted Center for active designPresident Joanna Frank. “For example, large windows and south-facing skylights in residential units and common spaces conserve energy by increasing access to daylight and reducing lighting usage, while improving the mental health of building occupants. In addition, the integration of bike parking can reduce car dependency, lower greenhouse gas emissions and encourage physical activity.”

CfAD developed and operates the popular Fitwel certification.

social considerations

The S in ESG covers multiple facets, including tenant health and financial privacy, human resource and training policies, supply chain, and community relations. HR practices are key, says Frank: “Policies like paid sick leave can benefit residents because they reduce the risk that on-site employees feel they need to go to work even when they’re sick.”

Frank also advocates optimal communication transparency, be it when passing on details about maintenance work or the results of indoor air quality tests.

One area of ​​particular growth for renters is wellness, especially since the pandemic. “Covid-19 has shifted healthy buildings from a ‘nice to have’ to a ‘need to have’. Investing is no longer seen as smart, it’s seen as non-negotiable,” Frank said.

The wellness approach is paying off for communities, Frank reports: “As in our recent investor survey87 percent of respondents saw increased demand for healthy buildings.”

“Health and wellness is a priority for all tenant cohorts,” said JLL’s Cirjakovic. “Services like virtual fitness classes, personalized virtual fitness classes, access to health information, and community engagement all play important roles in building a community.”

Outdoor living is also becoming more of a focus, observed Neff. LendLease communities have added popular elements such as rooftop farms and beehives for local honey.

Governance Considerations

“Diversity, equality and inclusion are of growing importance for multifamily organizations, and most organizations accommodate diversity at all levels of the organization: from the C-suite to the field workforce,” Willett noted.

“Diversity enables better thought leadership, better understanding and ultimately better business outcomes,” noted Cirjakovic. “A company with a diverse leadership team will attract diverse employees, who in turn may attract diverse tenants that reflect their communities.”

This is critical as Millennials and Gen Z are also literate, ethnically diverse and inclusive.

“Market preferences, the increasing cost-efficiency of environmental investments, pressures from capital partners and insurers, and regulatory pressures are pushing the industry towards greater adoption of ESG,” shared RCLCO’s Willett.

What does this mean for your community?

This means ESG can be healthy for your employees, tenants, and your bottom line, with this caveat: “There is still a lot of space in the ESG framework for multifamily businesses, and it takes industry leadership to ensure that everything that fills that space fills in, relates to how multifamily businesses operate and what they can meaningfully impact,” concluded NMHC’s Johnson.

Jamie Gold, CKD, CAPS, MCCWC is a contributor, wellness design consultant, and award-winning author of Wellness by Design (Tiller Press, 2020).

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