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December 20, 2023

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In recent years, there has been a significant shift in the way businesses and industries approach sustainability and social responsibility. One sector that has particularly gained attention is the real estate sector, where the concept of Environmental, Social, and Governance (ESG) has become increasingly important. ESG principles go beyond traditional financial metrics and focus on the long-term impact of real estate projects on the environment, communities, and governance structures.

What is ESG?

ESG stands for Environmental, Social, and Governance. It refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. ESG criteria are currently used by investors and other stakeholders, as they allow assessing the risks and opportunities for the development of an organization.

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Environmental

Environmental factors include a company’s impact on the natural environment.
Environmental criteria, includes:

  • The energy your company takes in
  • Water & Waste Management
  • The resources it needs
  • The consequences for living beings as a result
  • Carbon emissions and climate change

Social

Social factors include its impact on employees, customers, and other stakeholders.
Social criteria, addresses:

  • The relationships your company has
  • The reputation it fosters with people and institutions in the communities where you do business.
  • Labor practices, healthy and safety
  • Diversity and inclusion.

Governance

Governance factors include a company’s leadership and ethical practices.
Governance criteria, addresses the internal system of practices, controls, and procedures
your company adopts in order to:

  • Govern itself
  • Make effective decisions
  • Comply with the law
  • Meet the needs of external stakeholders.

What Triggered ESG?

The increasing focus on ESG can be attributed to a combination of factors such as environmental concerns, changing societal expectations, investor demand, regulatory changes, reputation protection, and the recognition of long-term value creation. These factors have collectively driven the rise of ESG as a vital framework for businesses across sectors, including real estate, to address environmental, social, and governance challenges and opportunities.

Why Should Companies Start Adopting ESG?

From overall resilience and future-proofing to regulatory compliance and reputation protection, companies should adopt ESG practices for several compelling reasons.

Environmental, Social, Governance (ESG)

Improve Access to Capital

Integrating sustainability enhance company’s ability to attract long-term capital and favorable financing conditions. It also enhances the company’s ability to attract longer-term investors, including major institutional investors

Cost Reductions

Effective ESG execution helps combat rising operational expenses such as raw material costs. These
cost reductions from ESG have been found to boost operating profits by as much as 60%.

Increase Employee Engagement

Sustainability helps companies to improve human resources policies, and indirectly improve employee morale and loyalty.

Profitability & Growth

Generate financial value for the company by identifying opportunities for cost savings, revenue generation, and risk mitigation. It also creates a deeper understanding of stakeholder needs, which could drive innovation and enhance market differentiation and competitiveness.

Enhance Compliance

In most jurisdictions, legislation requires listed companies to ‘disclose’ their ESG footprint through ESG disclosure reports.
Saudi Exchange has developed guidelines for listed companies to encourage ESG disclosure. This initiative aligns with Saudi’s Vision 2030 and commitment to sustainable growth.

Positive Branding

Active sustainability efforts can provide a competitive edge in their own right.
Branding a positive social or environmental contribution can put your business in the shop window of global supply chains and new export markets, and domestically create a positive image.

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