What’s the buzz about ESG?
REMEMBER when paper, metal or even edible straws were introduced to replace plastic ones? It was a pain, but many hopped on the bandwagon. Soon enough, it was no longer a fad but a movement. More people enlisted in the green army, buying into the idea of electric cars, responsibly sourced coffee beans, saving sea turtles, committed young men and women spreading the gospel about climate action, and even smart, sustainable homes. These seemingly sporadic movements were spurred by what is now known as ESG, or environmental, social and governance, criteria, and it’s here to stay.
What is ESG and its relevance in today’s world?
In shorthand financial parlance, ESG is meant to make capitalism work for everyone. From being shareholder-focused, it aims to serve stakeholders (customers, communities, suppliers, governments, media, etc.) or the greater good, which makes it more relatable to the movements of the everyman. With ESG, capitalism is made accountable as “a system in which stakeholders hold organizations accountable for the externalities they create, thereby better aligning long-term value created and distributed with the short-term incentives faced by financiers, resource owners, managers and workers.”
While seemingly a new and idealistic concept, ESG has been around for almost a century under different, more familiar names. Columbia Business School professor Adolf Berle is often credited as the “Father of ESG,” as he often stressed the significance of social responsibility in corporate governance.
In the 1950s and 1960s, activists also called organizations dealing in arms, gambling, tobacco, oil and gas, mining, and even adult entertainment to be socially responsible and cognizant of the harm they were inflicting on society at large. This caused these organizations to rethink aspects of their businesses and pivot toward adopting initiatives that would help alleviate, if not “undo,” the damage they had caused.
However, the term ESG was formally coined just in 2004 when the United Nations released a report called “Who Cares Wins.” The report underscores the financial industry’s recommendations to better integrate ESG into how businesses are run. It posited that ESG should be at the very core of a company’s DNA. Aside from covering organizations’ bottom line, it positioned companies as stewards, not just of resources but of stakeholders.
Early adapters: ESG in EU, US real estate
The real estate industry, particularly in the EU and the US, has recognized the significance of being ESG champions as what we do to our earth impacts nature profoundly: humans are made even more vulnerable to natural calamities such as typhoons, hurricanes, heat waves and forest fires. This resulted in real estate developers being more conscious about what they put up, starting with commercial buildings. This is why we have LEED and other similar certifications. With commercial structures being the real estate industry’s jump-off point to ESG adoption, residential developers, too, are now more involved. These new homes aren’t just functional and livable; they’re future-proofed and designed to withstand calamities and the effects of climate change.
ESG in PH real estate industry
In the Philippines, while it may not seem obvious, residential real estate developers, from affordable to luxury, have implemented ESG-friendly initiatives in their businesses. Many of us enjoy these ESG-related features, although we may not be aware of them. Some examples include proper lighting and ventilation in vertical developments, the use of renewable energy, walkable developments, smart features, and the abundance of green spaces. There is also a demand for green construction, which means having a value chain and practices that care for our earth.
Based on a 2023 consumer study, aside from the comforts and conveniences these ESG-focused features provide, the modern-day Filipino home buyer has been shown to be more conscious about selecting developments to invest in. While spurred by the desire to live a healthy, holistic lifestyle, choosing a trustworthy real estate developer with ESG-centric features is linked to their own principles and desire to contribute to a healthier planet.
ESG, while still a “buzzword” to many, is definitely here to stay. Having been around for years and assuming many names, it has gained traction among public and private entities, plus individuals who wish to bring about positive change. It may seem lofty and idealistic, sure, but that shouldn’t discount the past work that has been done in its stead. It will be interesting to see how else ESG evolves and how its principles seep into the real estate industry in years to come.