Investigating Governance in ESG

In the March 11, 2023 Weekender edition, we published the first of two parts on the “Social” aspects of ESG. In this second article, the focus is on “Governance” as it pertains to the Environmental, Social and Governance concept.

Environmental, Social and Governance (ESG) is making the rounds throughout the commercial real estate industry. Most of the focus, however, is on the “Environmental” pillar.

According to Partner Energy President Tony Liou, the focus makes sense. At least, for now. “’S’ and ‘G’ frameworks aren’t as well defined as ‘E,’” he said. “There are more tangibles with the ‘E,’ so more focus is still paid to the environmental aspect than the others.”

This doesn’t mean, however, that the two, specifically “Governance,” aren’t just as important to include in visions or missions. According to S&G Global, the “G” in ESG focuses on the governance factors involving all kinds of decision making. This can range from municipal, state and federal legislation and policies to an understanding of rights and responsibilities among corporate stakeholders.

“Unlike ‘E’ and ‘S,’ governance is more on the entity level, not the asset level,” Liou explained. Some of the issues concerning Governance might include property transitional risks or compliance requirements to which properties might be subjected. “Some places require benchmarking and energy audits for properties,” Liou added. “So governance risk means there is material impact for poor-performing buildings.”

Referring to the above S&P definition, “G” also considers internal governance. Like that focused on by Comunidad Partners’ Catherine Lucchesi, who is Director of ESG.

“Our ‘G’ pillar centers on being an industry in good governance by developing a diverse and inclusionary workforce,” she said. “This also includes ongoing training and development opportunities accompanied by transparent and responsible standards and policies.”

Lucchesi explained that Comunidad measures its DEI effectiveness by calculating the female and the “Black, Indigenous and People of Color” employees as a percentage of the company’s entire workforce. Additionally, as recruitment is the way to attract diverse talent, Comunidad works with diverse commercial real estate affinity groups to find that personnel, Lucchesi said.

“We require recruitment agencies to produce diverse and female candidates as a prerequisite to an engagement,” she went on to say. “And, due to our marketplace brand recognition and DEI leadership, Comunidad attracts a surplus of diverse talent pursuing positions at the firm, giving us a competitive advantage in future hiring. 

Both Lucchesi and Liou acknowledge that more companies are starting to pay attention to Governance as important parts of the ESG pillars. There’s more interest and awareness in issues ranging from hiring and leasing practices, health and wellness integration into the workforce and even amenity design, Lucchesi pointed out. Additionally, “Governance has a material impact on the properties,” Liou said. “Investors are asking companies to address both the ‘S’ and ‘G,’ so companies are paying more attention to them.”

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