Measuring Social Value in Commercial Real Estate

Posted by Knight Frank Newcastle on 22nd August 2024 -

The built environment significantly shapes and influences our communities. However, while environmental and governance metrics often dominate ESG (Environmental, Social, and Governance) reporting, the social dimension is frequently overlooked. This oversight is mainly due to the complex nature of social issues. Unlike easily quantifiable environmental metrics like energy and water usage, evaluating social value requires a more nuanced approach.

Measuring social value in real estate involves evaluating the positive and negative impacts of real estate projects and activities on individuals, communities, and society. This includes factors like community well-being, economic benefits, and environmental sustainability. Genuine social value is embedded and central to an organisation’s operations and values.

Investors demand robust social value metrics, prompting real estate management organisations to enhance their efforts in creating and measuring social impact. However, the industry continues to struggle without a standardised framework.

Recent advances in measuring social value

In December 2023, at the United Nations Climate Summit COP28, the World Green Building Councilintroduced a new position paper, Social Impact across the Built Environment. This paper outlines 4 key areas for consideration:

• Organisational practices: How internal policies and culture contribute to social value.
• Building users and site dynamics: The impact on those interacting directly with buildings.
• Community engagement: The relationship between real estate projects and the surrounding community.
• Supply and value chains: Social impacts throughout the supply chain.

These scopes aim to address the interplay between global challenges and local issues, providing a comprehensive framework for assessing social value.

Existing social value frameworks

The commercial real estate industry has developed several frameworks, benchmarks and tools to aid organisations in quantifying and reporting their social impact effectively.

Global Real Estate Sustainability Benchmark (GRESB)

GRESB is a widely recognised tool that encourages real estate and infrastructure organisations to report on a diverse range of social issues and practices. Participants in GRESB assessments evaluate vital areas, including:

• Tenant engagement: Strategies for fostering solid relationships with tenants and involving them in sustainability efforts.
• Community health and wellbeing:Initiatives aimed at improving the health and wellbeing of communities surrounding real estate projects.
• Human rights: Policies and practices that ensure respect for human rights within the organisation and its supply chain.
• Labour practices: Assessment of labour conditions, employee rights, and fair work practices.

United Nations Sustainable Development Goals (SDGs)

The SDGs offer a global framework that guides countries, organisations, and individuals in addressing complex social issues. The SDGs encompass a broad range of goals directly related to social impact, such as:

• Poverty reduction
• Quality education
• Gender equality
• Good health and wellbeing

By aligning their efforts with the SDGs, organisations can ensure that their social impact initiatives contribute globally.

Impact assessment tools

Several impact assessment tools are used to quantify social value in monetary terms and evaluate the overall impact of projects.

• Social return on investment (SROI): This tool quantifies social value by comparing the value of social outcomes to the investment made, helping organisations understand the social impact generated relative to financial inputs.
• Cost-benefit analysis (CBA): CBA evaluates a project's financial and social costs versus its benefits, providing a comprehensive understanding of its overall value.

European Sustainability Reporting Standards (ESRS)

The ESRS framework consists of 2 overarching standards and 10 topical standards covering ESG matters. These standards require businesses to report on:

• Policies, actions, and targets:Organisations must disclose data points relating to their policies, actions, and targets for achieving sustainability goals.
• Specific standards, such as the "Affected Communities" Standard (S3):This standard mandates businesses to report on economic, social, and cultural rights, civil and political rights, and the rights of indigenous peoples.

The Corporate Sustainability Reporting Directive (CSRD)

The CSRD represents a significant step forward in sustainability reporting. The CSRD mandates companies to report on the impact of their corporate activities on the environment and society and requires an audit of reported information. This directive marks a significant shift for in-scope businesses by expanding reporting requirements.

The CSRD obligates businesses to disclose their environmental and societal impact through the European Sustainability Reporting Standards (ESRS). All large companies operating in the EU and listed EU companies will soon be required to comply. A vital aspect of the directive is its enforcement of a "double materiality" approach to reporting.

From single to double materiality

The CSRD introduces a shift from the traditional single materiality approach, adopting a double materiality framework. Single materiality focuses on sustainability matters with significant financial implications, aligning with traditional ESG principles prioritising financial risk mitigation and material financial opportunities. Double materiality considers both financial materiality and impact materiality, covering impacts on individuals, communities, and the environment.

This broader approach casts a wide net, addressing impacts on stakeholders throughout the value chain, including suppliers, consumers, and employees. The expanded scope of the CSRD can highlight a suggested principle in legislation.

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