Sharing knowledge and best practices, from the beginner to expert level, is in everyone's interest as the complexity and scope of ESG matters only continue to increase, says Fulya Kocak, Nareit senior vice president for ESG issues.
Without collaboration on environmental, social, and governance (ESG) issues, progress in the real estate industry will not be fast enough, Kocak says.
When Kocak joined Nareit in 2016 as its first dedicated staff member for ESG issues, she found that the acronym in her job title elicited some confusion. "At industry events," she recalls, "some people would ask me what the ESG in my title means."
Today, Kocak rarely fields the same question—a change that speaks to how much the REIT industry has matured in a relatively short time on the ESG front. A majority of REITs have now begun their ESG journey, although some are further along than others.
Kocak, who has worked in the sustainability field for more than two decades, led the team that produced Nareit's Practical Reference for ESG Implementation and Reporting© (PDF). Information in the 128-page guide is distilled from ESG standards and frameworks, perspectives from subject-matter experts, and leading practice examples.
REIT magazine spoke with Kocak about the biggest challenges related to implementing ESG programs, how REITs can use the Pratical Reference and other Nareit resources to deepen their commitment to ESG, and where the industry is headed on the ESG front.
What are some of the biggest challenges that real estate organizations face when it comes to developing and implementing ESG programs?
Over time, the definition of ESG has expanded far beyond environmental considerations. For any company that's just getting started, ESG can feel overwhelming because there's so much to be done. It's hard to know which framework to follow. Companies may also feel they're in a race against time to stand up ESG programs.
One of the best ways to get started is for companies to leverage what they're already doing in terms of ESG efforts, rather than starting from scratch. I promise you that every REIT has a lot going on around governance policies, human capital, and environmental stewardship.
It's about understanding what they already have in place and coming up with strategies around those efforts that make sense for each company. This is critically important because ESG is not a one-size-fits-all application. Once companies have a strategy in place, they can set goals and start measuring their progress towards those goals.
Why was there a need for the Nareit Practical Reference for ESG Implementation and Reporting publication and what does it offer?
First, some context. In 2019, we published our Guide to ESG Reporting Frameworks (PDF) to help address the confusion around the alphabet soup of ESG frameworks, standards, and guidelines. In preparing that guide, we reviewed various ESG frameworks and guidelines to understand – at a high level – what ESG factors companies were being judged against. For instance, climate change was addressed in every one of those frameworks. Based on that research, we came up with the top-15 ESG criteria.
When we published the Guide to ESG Reporting Frameworks, members and investors said: This is great. You told us what the most-popular cookies are, but you did not give us the recipe. So, how do we implement and disclose around these larger ESG topics?
In the Practical Reference for ESG Implementation and Reporting, we dive into each of the top-15 ESG criteria, exploring how REITs can begin working on each one. For REITs that have already begun work in a particular area and would like to advance in that area, we discuss how you move to the next level and, ultimately, get to a leadership level.
It's a very practical document. I envisioned it as a go-to reference for ESG professionals in the real estate community. It can also be used if you want to educate your stakeholders, internal departments, or pitch something to your CEO—you can use parts of the guide to help with that.
How is the guide organized?
First, each ESG topic is defined. Then, for each topic, we provide illustrative metrics that companies may want to report against, as recommended by relevant ESG standards and frameworks. We also cover action items, challenges, resources, and tools for implementation. In terms of resources, we highlight not just Nareit resources, but others that are relevant and useful. The idea is to provide ESG professionals with everything they need in one place.
What other resources do you recommend for REITs that are relatively new to ESG?
I think Nareit's yearly ESG JumpStart program is a great resource. I like to call it REITs teaching REITs. This year, the program will be held in January and February and have eight, 90-minute virtual sessions on ESG topics, taught by ESG professionals.
We've seen this program grow in popularity. Last year, for the first time ever, most of the attendees were at the vice president or executive levels of their organizations. We also had a very cross-functional group of attendees, from general counsels to human resources professionals. That speaks to the way ESG has evolved. It's in everybody's job description.
I should also mention that we work closely with other real estate organizations, and they have many ESG resources. We collaborate with organizations like the Urban Land Institute, The Real Estate Roundtable, the Real Estate Equity Securitization Alliance, and the Institute for Market Transformation.
When it comes to ESG, unless we work together as an industry, we're not going to make progress fast enough. So, we're all about helping each other as real estate organizations.
One of the topics in the Practical Reference for ESG Implementation is the ESG journey. Would you break down the stops on that journey?
The first stop is organizational awareness: Where are you today? What do you have in place already? What is your social and environmental impact? It's all about self-awareness.
Once an organization is aware of its impact, it can move to the strategic level of identifying its ESG priorities.
If you don't clarify your ESG priorities as an organization, it can be very easy to waste time, money and resources focusing on the wrong things. Identifying your priorities based on your company's operations and stakeholder community is a critical step.
Then, you'll want to come up with a holistic strategy around those priorities. But it has to be cross-departmental. Everybody has to play in this game. Next, you'll want to set goals. Without clear goals, your strategy isn't going to go very far. Once an organization has clear goals, it can begin to work toward those goals and measure its progress year over year. That's how I see the ESG journey in simple terms.
How would you characterize the momentum surrounding ESG in recent years?
ESG has gained quite a bit of momentum during the last five years, particularly over the last 18 months or so. Interestingly, we've seen quite a bit of maturation around ESG during the pandemic, when companies faced many other challenges. ESG is not a wish-list item anymore, but an integral part of many companies' efforts.
The momentum has a lot to do with stakeholder demand. In the past, sustainability was something of a check-the-box exercise for investors. Today, they're asking very thoughtful questions focused on corporate strategies related to ESG and disclosures.
Where is the REIT industry headed in its ESG journey?
The REIT industry has been showing significant progress and leadership in ESG, especially around environmental initiatives. I expect to see increased focus on climate-change related efforts, social initiatives, and disclosures. I also expect to see an increased focus on governance of ESG with short- and long-term commitments around climate action, diversity, equity and inclusion, and other ESG priorities.