A Guide to ESG Ratings for Businesses and Buildings
Commercial real estate is competitive, and you need a way to demonstrate to potential investors that you’re risk-aware before they agree to work with you.
ESG stands for environmental, social, and governance, and ESG ratings are a quick and easy way to demonstrate your value. A strong ESG rating signals to potential investors that you effectively manage risks and opportunities.
Key Factors Behind ESG Ratings
ESG factors have become a core part of business strategy for leaders across industries. In consumer markets, 72% of customers report being willing to pay more for sustainable products. Most business owners think sustainability is a good investment and expect to see returns as early as 2030.
Commercial property owners and managers can demonstrate their commitment to ESG and how they implement sustainability initiatives by securing a rating.
After receiving your application, an agency such as MSCI or Sustainalytics evaluates your company on these factors:
Environmental — How your building impacts the natural environment. Criteria include your overall carbon footprint, resource usage, and waste management strategies.
Social — How your company benefits the surrounding community. Criteria include your relationships with vendors and suppliers, commitment to employee health and safety, and impact on the community.
Governance — How you operate your company. Criteria include the quality of your leadership, ethics of your operations, transparency of your communications, and your compliance with regulations.
How ESG Ratings Are Calculated
If you’ve been through any certification process for your commercial buildings, you understand the importance of choosing the right provider. You’ve likely weighed the pros and cons of LEED versus BREEAM or WELL versus Fitwel before applying for certification.
ESG is similar. You can apply for a rating from various agencies, including MCSI, Sustainalytics, and the Institute of Shareholder Services (ISS) — among many others. Some of these agencies focus more on financial risks, while others assess your overall sustainability impact.
Key Differences Between Providers
Each agency uses different data to issue ratings. Some use company disclosures and other reporting data, while others send agents to gather data from you directly. Here are some key differences between the leading ESG rating providers:
MSCI: Focuses on ESG factors potentially impacting your long-term financial performance, valuation, and risk. Compares your company with peer companies, and issues an alphabetical score ranging from AAA (best) to CCC (lacking).
Sustainalytics: Emphasizes ESG risks you haven’t addressed or mitigated that could impact your overall financial performance. Directly compares companies across industries and assigns a numerical score, categorizing risk as high, medium, or low.
ISS ESG: Offers a comprehensive ESG risk rating assessment, considering multiple ESG factors and issuing a letter grade from A+ to D-.
ESG Risk Rating Assessment Challenges
Because ESG ratings aren’t standardized among different providers, they are difficult to compare.
Consider, for example, content warnings for media. If you grew up in the United States, you may know what to expect from an R-rated movie. On the other hand, Japan has its own ratings system that ranks factors such as violence and profanity differently from the U.S. ratings system.
Beyond these inconsistencies, many ESG ratings are based on voluntary data. Unless an agency sends someone to a company to verify data, they can’t guarantee the company’s leaders are providing a complete picture. You can support your claims with proof of sustainable engineering practices or a living building certification.
Benefits of Strong ESG Ratings
Some U.S. states and European countries already require companies to report ESG data. If you’re in one of these locations, you likely already have what you need to get an ESG rating.
With a good ESG rating, you can:
Attract tenants and investors — A high ESG rating shows to investors that your company is less risky, making it more attractive to them. It also indicates that you care about the quality of life for your tenants in your building.
Comply with sustainability regulations — During the ratings process, you’re benchmarked against peers in your industry, helping you understand what standards to achieve.
Enhances your long-term value — Managing ESG factors, such as environmental impact, social issues, and ethical governance, builds your reputation as a trustworthy company, thereby improving your brand reputation and long-term value.
As an operator, you’re responsible for tracking and maintaining ESG data, which is easier with IoT monitoring sensors. IoT monitoring for air and water quality, energy use, water consumption, and other sustainability factors gives you real-time, trackable data.
Smart building technology also automates features that improve tenants’ quality of life. Intelligent lighting, temperature controls, and HVAC systems keep your tenants comfortable and healthy while minimizing your energy usage effectively.
Frequently Asked Questions About ESG Ratings
What is a good ESG ranking?
Scores from each agency vary. Some agencies rank on a 0-100 scale, where a score of 70 may indicate an excellent rating. Other agencies use letter grades, where AAA or A+ may indicate a leader.
What are the ESG scores ratings?
ESG scores or ratings measure a company’s performance in ESG criteria. They offer insight into a company’s long-term risk level and how it meets environmental and social responsibility goals.
What is the scale of ESG rating?
ESG rating scales vary among different providers. Agencies like Bloomberg and S&P Global use a 0-100 scale, while MSCI and ISS assign letter grades.
Improving ESG Ratings With Technology
An ESG rating is a great way to indicate to potential investors and tenants your commitment to sustainability, compliance, and tenant health. Any agency you choose for your ESG ranking will need appropriate data to evaluate your company.
Real-time monitoring of energy, water, and indoor air quality (IAQ) through IoT sensors and a connected platform gives you reports and analytics that show your sustainability metrics. Monitoring these factors in your buildings also helps you identify and quickly address any issues that may impact your tenants.
As you compile data for your rating, highlight instances where you promptly addressed ventilation, lighting, and other quality-of-life issues to keep your tenants healthy and productive.
Attune focuses on making your building more efficient through clean air, water, and energy. Our IoT monitoring systems collect and report the data you need to achieve a high ESG rating. Take the first step toward your ESG goals by scheduling a demo with Attune today.
