Real estate: corporate social responsibility
21 October 2015
Lesley Treacy examines the key drivers taking corporate social responsibility into the mainstream of the real estate and property development industry
Corporate social responsibility (CSR) is an often overused and somewhat maligned term. Put simply, CSR is a management concept whereby companies integrate social and environmental concerns into their business operations and interactions with their stakeholders.
Dealing with elements of the triple-bottom line, CSR can be used to manage these business concerns, reduce and mitigate associated risks and create value for both the business and the society within which the business operates.
CSR has a wide remit and is not a linear process. From energy efficiency and waste recycling to ethical procurement and supply chain charters to gender equality and diversity in the workplace, CSR can cover it all. Comprehensive strategies can therefore help companies to gain competitive advantage, provide growth opportunities and even mitigate risks, especially those related to supply chain continuity. PricewaterhouseCoopers has reported that:
'Intangible assets represent more than 80% of Fortune 500 market value. As a result, extracting maximum value from their intellectual assets is emerging as a priority for more and more companies'.
CSR activities can have a major positive impact on such ‘intellectual assets’, helping to reduce reputational risk and improve an organisation’s credentials within the local community. As well as improving transparency in business, CSR activities can also entice incoming tenants through lower operation costs or even make more money if end users are prepared to demonstrate a sustainability premium.
Given that as much as 80% of turnover goes to supply chain within large development organisations, the introduction of sustainability measures can be realistically expected to reduce associated risks and costs.
The idea has gained increased support and traction as private real estate firms and development agencies increase the amount and reach of their CSR activities. Furthermore, public calls for increased transparency and accountability have resulted in mandatory reporting requirements. For example, the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013, Paragraph 15(4) requires quoted companies to report annual (Scope 1 and 2) greenhouse gas emissions in their directors’ report.
Another reporting requirement, the CSR Directive (Directive 2014/95/ EU amending Directive 2013/34/EU) will be implemented into national law by 2016. In an effort to make disclosure of non-financial information more consistent across the EU, this Directive applies to ‘public interest entities’ including financial investors and real estate companies. The first reports are expected by 2017 and affected companies will be required to draw up an annual statement, on a group-wide basis, relating to:
- diversity on boards policy, in terms of age, geographical diversity, educational and professional background as well as gender diversity;
- environmental, social and employee related matters;
- human rights;
- anti-corruption and bribery;
- policies, outcomes and risks related to such matters.
Meanwhile, the UK Public Service (Social Value) Act 2012 requires the public and third sectors to consider their social impact in procurement and commissioning. The impact on the real estate industry is already being felt, with public sector bodies expecting their partners to evidence the social value they create.
On a recent Greengage scheme, the planning authority made a condition that the developer demonstrate a 10% target for local procurement from SMEs within a particular radius. Working with its contractors and Tier 1 and 2 suppliers, the developer was able to discharge the condition by having an embedded CSR framework that included a supply chain charter and well-established procurement and employment strategies.
Companies are also proactively reporting through a number of voluntary schemes. The Global Reporting Index, Global Real Estate Sustainability Benchmark and Carbon Disclosure Project all seek to improve CSR principles such as measurement, transparency and accountability.
Importantly, they have helped introduce CSR and environment social governance (ESG) measures to the board room. This helps stakeholders and investors to assess materially important information, which in turn helps to evaluate demand, understand longer term ESG issues and take non-financial risks into account during core business and general investment decisions.
As CSR shifts towards a core function of business, the need to quantify the benefits of such activities has become more important. This was reiterated by an Accenture/Principles of Responsible Investment (PRI) survey of more than 1,000 corporate chief executives, which found that while 38% of respondents believe they were able to accurately quantify the business value of their sustainability initiatives, only 7% of investors believe that this could be done.
Increasingly, therefore, companies need to demonstrate the social value of their activities through social return on investment (SROI) analysis. Through financially orientated metrics that resonate with financial departments, SROI analysis helps organisations to measure the environmental, social and economic benefits of business activities.
Social and economic impact
In the real estate industry, businesses are relatively proficient at quantifying the financial benefits of environmental benefits. For instance, the ROI on energy conservation measures is formalised through the ongoing Energy Savings Opportunities Scheme (ESOS) (see Property Journal May/June, p24).
Greengage has helped organisations go beyond this to establish the social and economic impacts of their investments including their employment and training activities, establishing the gross value add (GVA) of contributions to the public purse at local, regional and national level.
Direct employment opportunities generated by permanent/temporary positions were established, along with the financial value of apprenticeships, internships, work placements or training programmes.
Using national benchmarks such as the latest figures from the Annual Business Survey, which calculates that around £135,000 of capital construction expenditure is needed to support a person in a year of employment, Greengage has established the indirect/secondary employment opportunities generated among Tier 1 and Tier 2 suppliers.
CSR activities can also entice incoming tenants through lower operation costs
For social activities such as volunteering or provision of new facilities and services to employees and the local community, Greengage has worked with clients to establish the financial value at both strategic and local levels. This included attributing a financial value to the physical and mental health and wellbeing benefits associated with the installation of community facilities, including metrics such as job creation and training activities.
The financial benefits of particular activities, such as installation of cycle change facilities in an office, can also be measured. As well as quantifying a reduction in particulate pollution, it is possible to calculate the financial value associated with staff cycling. The SROI was based on national findings that estimate users of office cycle facilities take 15% fewer days off work through illness and are more punctual, because journey times are more consistent than motor traffic (including buses) at peak periods.
For volunteering, the traditional ‘cost replacement model’ that typically valued volunteer time with the cost of replacing them with paid workers has been updated. Now, as well as looking at the economic value of volunteers’ time, the calculation includes the value of the personal mental and physical wellbeing of both the volunteers and the recipients.
Depending on the activity, the value of enabling increased participation capacity among the local community can also be calculated. Organisations are then able to determine which CSR measure is the most viable or provides the greatest value.
Introducing the ICRS
The support for such CSR analysis is available from a variety of methodologies, including the SROI Network or the Sense of Community Index. There are also many synergies with the Prince’s Accounting for Sustainability Project or the Homes and Communities Agency Additionality Guide.
The field of CSR has gained further credibility with the establishment of the Institute of Corporate Responsibility and Sustainability (ICRS). The not-for-profit organisation is led by a volunteer board of senior professionals, chaired by Claudine Blamey, Head of Sustainability and Stewardship at The Crown Estate.
The ICRS helps individual members to develop their careers by setting professional standards, recognising their achievements and supporting them through continuing professional development. It also helps organisations to demonstrate their commitment to CR and sustainability, and facilitates seminars, events and networking opportunities.
The support of the ICRS by a number of high-profile real estate and development organisations perhaps reflects recognition by the industry that CSR is no longer a ‘nice to have’ but a core business function. Along with increased legislation brought about by the EU non-financial reporting directive this means that over the next year to 18 months we will hear a lot more about the measurable benefits of CSR.