Fitwel’s Certified Metrics: Bridging the Gap Between Real Estate and ESG

Nov 15

Insights from the Center for Active Design Experts

Defining ESG

For the past few years, ESG has been a hot topic in and around the financial world. While the terms have evolved over time, ESG or Environmental, Social, and Governance investing and reporting, arose from an investor and corporate desire to understand the non-financial factors that have ethical implications and consequences while also impacting the bottom line. These terms were born with the publication of the UN’s Who Cares Who Wins report, which argued that financial reporting should include a broader definition of materiality. In essence, ESG investing and reporting is an effort to integrate non-financial risk and value factors into financial decision-making processes. While the elements included in reporting have evolved over time, there has been a global consensus in the years since COVID-19 that ESG reporting is a must have for companies looking to attract investment, and in some regions, comply with legal regulations.

Recently, the conversation has shifted from whether ESG factors matter to how to define them due to their growing prominence in investing and reporting. The most well-established aspect of ESG is the “E” - Environmental pillar - centered around environmental health and climate change issues. Metrics, from Scope 1, 2, and 3 emissions to water and waste management, and themes included in this section of reporting aim to capture a company’s impact on the environment, contribution to climate change, and risks or exposures associated with a warming planet. For the Social and Governance pillars definitive themes have proven more challenging. Social reporting tends to encompass human rights, health, community, and labor issues, while governance reporting has focused on ethics, anti-corruption, corporate structure, and board representation. Despite these terms and themes which are increasingly being considered within ESG reporting, the metrics to measure performance within these areas are still being established. Questions of financial materiality and industry relevance continue to complicate reporting on the Social and Governance pillars. Within the real estate sector, companies use a combination of data from GRESB, GRI, TCFD, UN SDGs, and others to compile, on their own terms, a jigsaw of their own ESG reports. Unfortunately, each framework has a different set of qualifications, which has led to a disparate landscape rife with greenwashing and making accurate relational comparisons near to impossible to understand. This has led investors to believe overwhelmingly that corporate reporting contains unsupported sustainability claims. Furthermore, as it pertains to the “S”, or health and human rights metrics, these types of reports are extremely difficult to analyze and strongly under-conceptualized.

Fitwel’s Role in ESG

As a result of the confusing and unregulated nature of the ESG reporting landscape, looking ahead to 2024 it is unsurprising to find that, based on polls of executives, almost all companies plan to seek external support in ESG reporting and invest in technologies and tools to improve the accuracy, completeness, and quality of the data they are reporting. As regulators from the SEC to the EU are working to standardize reporting, there is an industry-wide call for certified data supporting the goals and issues central to ESG. Fitwel and the third-party certified data it provides can play a central role in pushing forward this progress. While our research library of over 7,000 peer-reviewed articles confirms that the Fitwel Standard supports health, in more ways than one, supporting health may also create financial value. Elements that sit within this Venn diagram, displaying health and financial value creation, are a centerpiece of the developing “S” reporting metric of ESG.

Certified Metrics

To better support ESG efforts, our team identified strategies linked to financial return, expanding our research library to include an additional 400 articles focused on the economic value of health-promoting built environment interventions. This additional research identified financial-related attributes of a variety of strategies including heat island mitigation, flood risk mitigation, occupant satisfaction surveying, and lactation rooms. A thorough audit of our Fitwel library against this new research led to the development of Fitwel Certified Metrics, an entity-level tool using certified data to help users assess risk and value in real estate.

At the outset of product development, we structured Certified Metrics around six targeted outcomes that capture the most meaningful overlaps between ESG reporting and health and well-being in real estate:

Support High Quality Environment
Create Climate Change Resilience & Preparedness
Engage with Occupants and Community Stakeholders
Promote Equity
Optimize Assets for Walking & Active Transportation
Enhance Access to Natural Elements

These core themes connect goals around health promotion and economic value creation and provide valuable insights that can be used in year-end reporting for investors and advisors, as Fitwel Certified Metrics data is all third-party certified. Users who submit to Certified Metrics will receive an annual report containing an entity-level breakdown of risk exposures, including gaps in performance and areas of opportunity, as well as strengths and areas that further validate the entity as a reliable investment.

By 2025, many estimate ESG investments will surpass $53 trillion, and data validation will be central to providing legitimacy to these investments. Fitwel’s Certified Metrics offers the necessary validation, while also providing a goal-focused perspective where achievements can be compounded over time to optimize risk reduction and occupant health. With a full product launch to come in 2024, Certified Metrics is an incredible opportunity for companies looking to better understand the ESG-related risks and potential within their portfolio, as well as remain agile and lucrative amidst the evolving ESG landscape. More details on the product are soon to come in the new year, and in the meantime stay tuned for updates from Fitwel and the Center for Active Design on ways to integrate health and value into your entity portfolios.

Click here to learn more about Certified Metrics.

Article contributed by Grace Dickinson, MPH, MUP, Fitwel Ambassador, Associate Director of Applied Research, Center for Active Design

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