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By Daniella Nyakuraya, Safaricom Investment Co-operative Housing Unit Manager
Since the Environmental, Social, and Governance (ESG) concept began to take shape, there have been numerous campaigns encouraging businesses globally to adopt more sustainable practices, pushing them to shift their focus from merely delivering products and services to ensuring sustainability. Although ESG reporting has not gained significant traction in Kenya, its incorporation into company standards is gradually increasing. The Kenya Companies Act of 2017 requires directors to consider ESG matters that could impact their company’s future performance.
Several initiatives championing the ESG agenda exist, some specific to the real estate sector, such as the Global ESG Benchmark for Real Assets (GRESB). This benchmark sets standards for evaluating the ESG performance of real assets, including real estate, promoting global sustainability in the sector. Additionally, the Kenya National Climate Change Action Plan, International Finance Corporation (IFC) Performance Standards on Environmental and Social Sustainability, UN Sustainable Development Goals, and Global Reporting Initiatives Standards are policies that businesses in Kenya can use as ESG benchmarks.
The ESG agenda is increasingly influencing various sectors in Kenya. To stay relevant, attract investors, and make a significant impact, real estate companies should focus on integrating ESG into their business and CSR practices. By concentrating on the ESG pillars, the real estate sector in Kenya can drive sustainability and make a meaningful impact in the following ways:
Social Impact
The social aspect of the ESG agenda involves developing, managing, and investing in properties that generate measurable social impact alongside financial returns. ESG emphasizes creating sustainable communities that thrive economically, socially, and environmentally. By considering factors such as affordable housing, access to essential services like hospitals and shopping centers, and environmental sustainability, real estate developers and investors can contribute to the long-term success and well-being of the communities they serve.
Investing in projects that address issues like homelessness, healthcare accessibility, education, and job creation positions developers as powerful agents of positive change. Social impact in real estate presents an attractive opportunity for companies to attract investors seeking both financial returns and a positive influence on society.
A strong ESG strategy prioritizes the development and operation of buildings that are safe for occupants and the surrounding community. Developers should carefully consider building safety, health codes, emergency response plans, and community needs to inform this strategy.
Environmental Impact
The global call for greener, more sustainable built environments has intensified due to increasing demands over the last decade to reduce greenhouse gas emissions and manage climate change. The IFC estimates that green buildings represent significant investment opportunities worldwide, anticipated to be worth USD 24.7 trillion by 2030.
The real estate sector is a major contributor to greenhouse gas emissions. To mitigate this impact, there is a growing emphasis on energy efficiency and green building practices. Developers seeking to apply ESG in their company strategies should focus on reducing harmful emissions that negatively impact the environment. Building codes, certifications like LEED (Leadership in Energy and Environmental Design), and energy performance assessments are becoming key considerations in real estate development. Energy-efficient buildings not only reduce carbon emissions but also offer cost-saving solutions for occupants through lower energy bills, making them attractive for investors and tenants.
Efficient resource use and responsible waste management are crucial for sustainable development. Water-saving technologies, rainwater harvesting, recycling systems, and waste reduction strategies should be incorporated into real estate projects to minimize environmental impact.
Some real estate companies in Kenya are already making efforts to positively impact the environment. These efforts include buildings with natural ventilation and lighting, photovoltaic (PV) panels for sustainable electricity generation, low volatile organic compound (VOC) emissions materials, and sewer treatment plants promoting water recycling.
Governance Impact
Real estate companies in Kenya should prioritize the safety of employees and the public during construction phases. As major employers, they should address employee needs both in the office and in the field, ensuring diversity, fair executive pay, tax management, and business ethics. An inclusive governance strategy coupled with regulatory compliance attracts investors, leading to financial growth.
Commercial real estate firms with sophisticated ESG strategies can increase asset value, lower operating costs, and unlock sustainable financing opportunities to grow the company. Adopting ESG strategies can improve corporate reputation and culture, enhance risk reduction and opportunity management, and increase intrinsic value.
As businesses, let us not only make ESG a plan but also an attainable goal. Let us impact our communities and environment one pillar at a time, and eventually, we will be the change the world needs.
