Multifamily property management operators are quickly shifting towards more sustainable and community-driven methods, with environmental concerns becoming a greater priority in property management. And driving this shift are emerging Environmental Social Governance regulations.
But what exactly is ESG and how is it impacting multifamily property management (and SA commercial property management, in general)? Our Guide to ESG breaks down exactly what MDU operators should expect moving forward, and explores eight ESG best practices, and how Verdant can help you reach your ESG targets with our smart technology.
What is Environmental Social Governance?
Simply put, Environmental Social Governance (ESG) involves adopting a “corporate strategy [that] focuses on the three pillars of the environment, social [inclusion], and governance. This means taking measures to lower pollution, CO2 output, and reduce waste” (the environment), as well as committing to to a diverse and inclusive workforce from the ground floor (social) all way to the board of directors (governance).
In other words, ESG is about more than just implementing sustainable MDU management practices. It’s also about creating both a work environment and management culture that reflects the diversity of both tenants and society at large. And in doing so, MDU investors can access advantageous financing products to reinvest in their properties and gain a competitive edge.
The “E” in ESG refers to the environmentally considerations of a business – in other words, monitoring the environmental impact of a business investment. In the case of MDU properties, this will largely entail adopting more sustainable infrastructure technology and supply chains. This can include adopting renewable sources of energy, implementing smart technology to reduce a property’s energy consumption, using more sustainable building materials and construction methods, and managing waste disposal and water usage.
The “S” in ESG relates to the social impacts that a business investments has on the communities, its employees, its customers, and any other stakeholders. For MDU property managers, this can refer to hiring practices, labor standards, workplace health and safety, and even the suppliers and supply chains they choose to work with. To achieve their social ESG targets, MDU companies must look to drive a more positive impact through how they manage their properties, aligning their financial goals with community well-being. And while social impact targets are harder to quantify than environmental targets, they can nonetheless prove equally beneficial for a business’s bottom-line, supporting in long-term revenue streams.
The “G” in ESG is designated to evaluate how businesses are governed, including their organizational structure, and how stakeholders inform, make, and share decision-making power. Much like social impact standards, governance best practices are not always clear-cut and can encompass a variety of different areas – especially in a MDU property management company. Governance-related targets typically involve adopting a fair decision-making process as it relates to managing the MDU, as well as putting in place equitable board selection procedures. Multifamily property management companies are also assessed on their ability to communicate transparently with stakeholders and their ability to align their different interests.
ESG in MDU Property Management
Insofar that MDUs properties are businesses that are also community living spaces, ESG best practices are very much aligned with efficient and profitable property management outcomes. In other words, adopting sustainability practices not only has a positive impact on the community in which the MDU operates in, but also increases tenant retention, as well as afford managers access to advantageous financing opportunities. Consequently, the MDU management industry has witnessed the rise of eight distinct ESG trends.
1. ESG best practices drive revenue opportunities
There are some clear financial incentives for multifamily property management companies to adopt ESG best practices. Not only does implementing ESG best practices open-up advantageous borrowing opportunities, but it can also attract new investors while supporting occupancy goals. Unsurprisingly, MDU property management companies are increasingly tracking environmental data and finding new ways to reduce their building’s carbon footprint. Whether that means installing commercial grade smart thermostats (such as Verdant’s ZX and VX Thermostats) to optimize energy consumption in both common areas and tenant units, or implementing waste management policies, achieving ESG targets are proven to bolster MDU revenue.
2. Environmental regulations will continue to expand
Multifamily property management companies should also expect further environmental regulations to be put in place in coming years. Consequently, prioritizing ESG targets in the present will help them prepare for what’s to come. Accordingly, it’s crucial that MDU operators prepare to meticulously document their properties’ ESG performance and monitor their progress towards complying with sustainability policies. Without a clear environmental framework in place, multifamily property management companies can find themselves falling short of future ESG requirements and incurring the costs of having to retrofit their infrastructure on short-notice.
3. Energy-conservation & net-zero carbon properties are becoming the standard
Energy conservation is at the heart of ESG best practices for multifamily properties. Over time, energy-conserving and net-zero carbon buildings will become the norm for MDUs, rather than the exception, forcing MDU operators to consider the environmental impact of their investment. With renewable energy sources becoming more and more accessible, multifamily property management companies will be expected to further reduce their building’s energy consumption and eventually achieve net-zero carbon emissions. In the meantime, MDU operators are increasingly relying on smart energy management technology to track real-time occupancy patterns of their tenants and optimize energy consumption of both the HVAC and lighting systems.
4. Environmentally friendly buildings tend to yield higher rents
Not only do MDUs with ESG best practices in place typically have lower operating costs (from reduced energy inefficiencies and operational overhead), but they also tend to yield higher rents. For instance, smart energy saving technologies are a significant draw for potential tenants. Indeed, one study by NMHC and Kinsley Associates found that 77% of renters would pay 30$ per month more if their unit features such smart technology. It’s also worth noting that environmentally-conscious tenant are also more likely to maintain their tenancy in perpetuity when they’re aware of a property’s ESG efforts – even if it means paying a slightly higher rent.
5. Developers are turning to sustainable construction materials
Multifamily property management companies are also relying more on sustainable construction materials and methods to reach ESG goals. Indeed, materials such as concrete and steel emit significant greenhouse gasses during production. Timber, on the other hand, is renewable, emits fewer emissions, and is often cheaper than other materials – offering further cost-savings to MDU investors.
6. Setting ESG benchmarks and data transparency
Multifamily property management companies are also evaluated on their ability to communicate ESG progress with stakeholders and to the communities they operate within. Consequently, MDU operators are required to set clear ESG targets, measure their progress, and routinely share that data in a transparent way. And this tracking is typically achieved through both their energy management system and Building Management System (BMS).
7. Affordable housing investments generate returns and support communities
With inflation and property values soaring (pricing individuals out of homeowner and rental opportunities), investing in affordable housing is one another way that multifamily property management companies reach ESG goals. Investing in affordable housing not only has a positive social impact on the communities MDUs operate in, but it also gain investors access to tax credits.
8. Health-conscious facilities are a top ESG target
Finally, providing health-conscious facilities is yet another way in which MDU operators can reach ESG targets. Whether this means improving air ventilation and filtration, or introducing value-added amenities such as a gym or other sports facilities, multifamily property management companies can demonstrate their commitment to social well-being by providing tenants with a health-conscious living space. Furthermore, beyond the common areas, MDU operators can also ensure that tenants have sufficient space in their own units, as well as access to light, regular maintenance, and more.
Smart technology, ESG, and Revenue Opportunities
With Smart HVAC energy management technology, for instance, multifamily management companies can significantly reduce their energy consumption (and costs), while also gaining crucial insight into their carbon emissions. That insight can then be used to both achieve further reductions and communicate their progress to stakeholders and the community in quantifiable terms.
In the case of installing Verdant’s energy management system and line of smart thermostats, moreover, MDU managers can expect to recoup their investment in as little as 18 to 36 months. So not only are MDU operators able to reduce their carbon footprint while tracking and reporting on their properties energy consumption, but also achieve such significant cost savings that they can increase their profitability, and even increase the resale value of a their property.
Attaining ESG targets with smart technology
As the real estate industry continues to seek more sustainable practices and outcomes, achieving ESG targets is quickly becoming both a priority and requirement for MDU property management companies. In addition to more sustainable construction materials and more conscientious organizational practices, smart technology offers MDU operators an immediate avenue to their ESG goals.