Defining ESG

DEFINING ESG – WHY IT SHOULD BE ON THE REALTOR® RADAR

In 2021, NAR released its inaugural ESG+R Sustainability Report. The new report highlights the association's top sustainability accomplishments in 2021 within four categories: environment, social, governance, and resilience.

INVESTORS AND CONSUMERS – notably the younger generations – have, in recent years, shown interest in putting their money where their values are.

ESG has become one more acronym among the hundreds we use in the world of real estate. Yet, what is ESG, exactly? Further, how will ESG grow to impact real estate? ESG, or Environmental, Social, and Governance, is a set of standards for a company or practitioner’s operations that investors (or consumers) use to screen potential investments. Environmental criteria measure how that company or practitioner perform as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance refers to policies around leadership, executive pay, audits, internal controls, and shareholder rights. In short, ESG evaluates if a company, organization, or practitioner is operating sustainably. Globally, sustainability is rated as an important purchase criterion for 60% of consumers.

“Sustainability is the evolution of long-term value creation for people, planet, and the economy. If sustainability is the journey, then ESG is how we measure progress,” said Ryan Frazier, CEO of Frazier Global, a Colorado-based management consulting and environmental, social, governance (ESG) advisory business. Nasdaq veteran board member Betsy Atkins makes a compelling argument as to why ESG initiatives can unlock competitive value, opining that “companies that recognize the importance of adapting to changing socioeconomic and environmental conditions are better able to identify strategic opportunities and meet competitive challenges. Proactive and integrated ESG policies can widen a company's competitive moat relative to other industry players.”

REAL ESTATE IS PAYING ATTENTION

“We must integrate a culture of sustainability throughout our association and industry. By building a resilient real estate market today, we can create healthy, vibrant, and diverse communities for generations to come,” said 2022 NAR President Leslie Rouda Smith.

In 2021, the National Association of REALTORS®(NAR) released its inaugural ESG+R Sustainability Report. The new report highlights the association's top sustainability accomplishments in 2021 within four cat-

egories: environment, social, governance, and resilience. In the coming years, this annual report will offer a snapshot of NAR's current state of sustainability activity – existing programs, resources and services – while tracking the association's progress over time on stated goals within the context of NAR's multiyear Sustainability and Resilience Plan. "Leading by example, NAR is driving the real estate industry toward a more efficient and sustainable future," said NAR CEO Bob Goldberg. "As part of this responsibility, we are strengthening the association's support of sustainability efforts and increasing engagement on policies and programs that prioritize viability, resiliency, and adaptability. We are working to generate meaningful, lasting change that will benefit both current and future generations."

THE MOST ACTIVE HOMEBUYING GENERATION CARES ABOUT ESG

Millennials now make up 43% of homebuyers, the most of any generation, according to a 2021 report from the National Association of REALTORS®—and that number is only predicted to rise. And this generation has a reputation for being values-driven in their approach to their money and their careers. These choices drive where they choose to work, play, and buy a home. About one-third of millennials often or exclusively use investments that take ESG factors into account, compared with 19% of Gen Z, 16% of Gen X and 2% of baby boomers, according to a Harris Poll on behalf of CNBC, which surveyed 1,000 U.S. adults ages 30 to 40 on a variety of topics. The escalating importance of ESG doesn’t just impact homebuyer sentiment. It will also matter to brokerage firms looking to hire the best and brightest agents. Companies that promote strong ESG values tend to attract and retain the best talent.

“Millennials care deeply that the companies they work for (and the businesses they support) embrace values that are aligned with their own, and environmental and social responsibility are very important to them. Employees who are passionate about the organization, who are loyal, and who feel valued drive an intangible good will that strengthens the brand of the company and improves the overall productivity of the workforce,” penned Betsy Atkins on this topic for Nasdaq.

ESG AMONG COLORADO CONSUMERS

In preparation for CAR’s Strategic Think Tank Forum, which took place in April at CAR’s Spring Summit in Vail, Colorado, CAR worked with Frazier Global to produce a Purple Report on ESG and Real Estate in Colorado. The report breaks down research data on ESG sentiments among potential homebuyers in Colorado. The report highlighted that real estate’s economic impact has long been foundational to society, but its social and environmental significance is now emerging. Value drivers have implications for access to markets, the planet, and the social contract that ties us all together. It also made obvious

that ESG is not just an increasingly important consumerdriven expectation for corporations, it’s also meaningful to independent real estate practitioners as a direct result of their relationship with clients.

The Purple Report on ESG and Real Estate had 703 respondents. 51% Live in Colorado and own a home or want to own a home in Colorado and 49% live outside the state but expressed an interest in buying a home in the state. KEY FINDINGS:

When asked, do you think REALTORS® should be familiar with and able to effectively communicate sustainability housing practices and their long-term value to you as a homeowner or potential homeowner? 78% of respondents said yes. The number jumps to 85% of respondents who said yes among those earning $125,000 annually or more. When asked, are you more likely or less likely to work with a REALTOR® who has a proficient level of knowledge and training on sustainability and sustainable housing practices when it comes to buying, selling, or investing in a home? 70% of respondents were somewhat or much more likely. When asked, do you agree or disagree with the viewpoint that Colorado REALTORS® should have policies and practices publicly available that disclose their approach to ethical behavior and transparency of potential conflicts or business practices? 69% of respondents said they agreed. When asked, do you agree or disagree with the viewpoint that as the number of severe weather conditions, droughts, wildfires increase due in part to climate change, and with the potential risk to homes and commercial properties, REALTORS® need to be helping provide solutions that address climate change risks? 67% of respondents said they agree. The number jumped to 80% among those ages 18-24, and to 79% of those earning $150,000 a year or more. When asked, how important is it to you, when owning or purchasing a home, that you know the home’s energy rating and water efficiency? 70% of total respondents said this was very or somewhat important. That number jumped to 90% for those with a post-graduate education. When asked, are you more or less likely to choose a REALTOR® over an online platform when the REALTOR® provides you trusted expertise on things like community insights, price negotiation, and water and energy features? 63% of respondents said they would be MORE likely to choose a REALTOR®. That number jumped to 72% of those with undergraduate or post-graduate degrees.

CONCLUSIONS:

• Sustainability and environmental, social, governance (ESG) factors are of increasing importance to a range of stakeholders.

• The support for sustainability/ESG spans every demographic. • REALTORS® would be well served by dramatically stepping up efforts to become better educated and equipped about ESG. • REALTORS® should integrate both the use of technology with their expertise and the local knowledge needed by homeowners.

• REALTORS® who value ESG in the workplace will retain employees and increase productivity. • Matters like housing affordability and inclusive communities continue to be an issue that require solutions. • The transparency and ethics of REALTORS® stood out as characteristics home buyers and sellers want. • Three-quarters of respondents believe that REALTORS® should be familiar with and able to effectively communicate sustainability housing practices and their long-term value. This report urges greater adoption by the REALTOR® community and its state and local associations.

THE PURPLE REPORT’S SUGGESTIONS FOR ASSOCIATIONS:

1. Continue to raise awareness and ask questions about the relevance of Sustainability and ESG to yourself, fellow REALTORS®, and state and local associations.

2. Think more strategically; consider establishing a Sustainability/ESG Advisory Committee for both residential and commercial concerns.

3. Call to action: Don’t just follow, Lead YOUR industry - integrate sustainability and ESG into the association, your businesses, and toolkits – focus on value creation, financial performance and impacts on communities.

As the National Association of REALTORS’® Code of Ethics preamble tells us, “Under all is the land.” Our planet is the one resource we all depend on, as will our heirs. The best time to care for it—and for them— is now.