The race for sustainable infrastructure has been growing in demand in the real estate industry for the last decade. And with rapid digitization in real estate, digital technologies like blockchain play an important role in building and improving ESG infrastructure.
ESG has been a crucial factor in determining the value of real estate properties. In addition to due diligence, investors consider ESG factors at every stage of the property lifecycle, from acquisitions to leasing.
Picture a situation where the power consumption of your tenants might have a significant impact on your cash flow and asset value.
In such a world, zero-emission properties can generate carbon credits by monitoring tenants’ power consumption.
Such extensive data monitoring with complete transparency is only made possible with the help of blockchain technology.
So, let’s dive into the ESG benefits of blockchain technology in real estate.
What is ESG in Real Estate?
ESG stands for Environment, Social, Governance. It helps in assessing how a commercial real estate portfolio manages risks and opportunities caused by abrupt market changes. These changes impact real estate investments across environmental, social, and governance factors.
The global acceptance of climate change and its material risks has led to an increase in investments in green buildings and clean energy infrastructure in recent years. The US market value for sustainable buildings was observed at $83.1 billion in 2021 with a CAGR of 8% from 2017.
ESG certifications with data-driven analysis can benefit investors by increasing funding opportunities, granting them exclusive lending privileges, and more.
In the aftermath of COVID-19, real estate companies are constantly facing challenges with ever-changing investor demands and reporting needs.
The EY Climate Change and Sustainable Services (CCaSS) 2020 survey found that 98% of investors evaluate non-financial metrics for investment decisions.
- Environmental
The Environmental factor in ESG refers to implementing environment-friendly practices and monitoring investments on how they impact our environment.
Real estate investors’ top priorities for a sustainable investment approach include energy efficiency and the promotion of renewable energy sources.
- Social
The Social factors in ESG refer to the social impact on real estate companies, communities, and stakeholders.
ESG’s social factors require investors to explore how their assets can deliver value to that particular community while providing a place for employment.
Moreover, it addresses company practices around human rights, management, and updating employees on the latest technology.
- Governance
Governance in ESG deals with how real estate businesses and companies make informed decisions. Investors must adopt transparent board selection procedures and fair decision-making methodologies to comply with governance standards in ESG real estate.
Organizations must ensure good governance practices to build trust with investors, tenants, and communities.
Monitoring these factors using traditional managing and reporting methods is a difficult task to achieve. However, blockchain technology has changed the way how real estate companies have been dealing with ESG reporting.
How Blockchain in Real Estate offers ESG Benefits
Digitization of the real estate industry has been trending for the past decade. Besides revolutionizing digital payment structures, blockchain technology is transforming the traditional real estate industry in various ways.
Why blockchain is essential in real estate
From making real estate investments efficient and secure to helping companies drive more favorable ESG outcomes. Blockchain is giving real estate a new facelift.
Renowned commercial real estate companies like Brookfield Properties are utilizing blockchain technology as a part of their carbon reduction strategy.
Its partner Brookfield Renewable Partners supplies renewable energy to One Manhattan West, a 67-story, 2.1 million square feet office tower. Moreover, the entire commercial property is being tracked on the blockchain.
Other major landlords like JPMorgan and Mckinsey & Company are also acknowledging the importance of blockchain for improving ESG outcomes and driving value to their investment.
Improved ESG Reporting
Real estate companies can access accurate data using blockchain-backed reporting tools, that help to generate trustworthy reports. Thus, demonstrating ESG credentials.
The distributed ledger technology provides your organization’s platform with data transparency while enabling data standardization.
Moreover, tech tools like Internet-of-Things (IoT) devices automate data collection. Devices connected to a network make communication seamless without human intervention.
Device-to-device communication using blockchain ensures that all data is both accurate and encrypted so it cannot be altered without authorization.
Companies can reduce their carbon footprint globally by using a blockchain platform for reporting all their emissions. Thus, providing a standardized platform to gather and track data, allowing us to make meaningful measurements.
In real estate, blockchain technology is useful for investors and landlords to monitor the ESG performances of their investment properties.
Investors can get a clear picture and real-time updates on energy consumption, water usage, wastage, and other essentials required to achieve sustainable goals according to the ESG trends in real estate.
Supply Chain Transparency
Improving supply chains is an important part of achieving sustainable goals. Blockchain in real estate can help real estate organizations gain visibility into how building materials are produced, used, and recycled.
Blockchain is a digital ledger, that results in increased transparency in supply chains by letting investors check the authenticity of green buildings by tracing them back to their origin. Moreover, transactions along the supply chain can be recorded digitally and stored in a database.
With this decentralized database of transactions, supply chain management becomes transparent, reliable, traceable, and efficient.
Visibility allows companies to identify issues or risks faster and determine the root cause more reliably, allowing them to take quick and decisive action when quality issues arise.
For example, it can help real estate companies and investors track how building materials are produced, used, and recycled. So, an insight into the lifecycle of building materials helps you to determine whether or not a building is green.
Accessible Investment
The Principles of Responsible Investment explore blockchain’s benefits for environmental, social, and governance investing. Using blockchain technology for microfinance, companies and private investors can access financial instruments. These solutions cover payments, currency exchange, funding, investments, and decentralized decision-making into lucrative real estate investment properties.
Lilypads Bottomline
With the growing demands for sustainability and increasing ESG trends in real estate, sustainability has become a core value in the real estate business. And for achieving its sustainable goal the real estate industry needs to acknowledge the importance of blockchain and its ability to assist in consistent, effective, and standardized ESG reporting.