Sustainability and ASG in Mexico's Commercial Real Estate: Key Drivers for Risk Mitigation and Profitability

In a global market centered on sustainability and ASG criteria, Mexico's commercial real estate sector faces governance, transparency, and result measurement challenges to create environmental value, mitigate risks, and ensure long-term profitability.

Torre Reforma in Mexico City has LEED Platinum sustainable certification. Photo: Torre Reforma.

By: SiiLA News

01/17/2024

In a constantly evolving world, where environmental awareness and social responsibility take center stage globally, the commercial real estate market plays a crucial role in pursuing a more sustainable future. From the towering skyscrapers that grace our cities to the workspaces we inhabit daily, the impact of the real estate and construction industry is undeniable. In this context, sustainability and ESG (Environmental, Social, and Governance) criteria are indispensable for achieving a more prosperous future in business and quality of life.

Currently, ESG risk analysis and data-driven sustainable objectives are global trends. These trends pose significant challenges in Mexico, especially concerning the governance and transparency of ESG actions, sustainable reporting, and carbon footprint calculation.

Martha Garcia, Managing Director of Footprint 360, a prominent business consultancy specializing in ESG criteria and sustainability as a business strategy, highlights the primary issue in Mexico lies in result measurement. "Data is crucial," explains Martha. Both large established companies and newly created ones striving to be more sustainable and meet ESG criteria must be capable of identifying and measuring the factors they aim to improve, such as waste generation or water and electricity consumption. "Why? Because metrics are essential for setting clear objectives," she adds in an interview with SiiLA.

Measurement is the first step toward delving into the ESG and sustainable realm. It implies that companies must streamline their internal processes, establish high-quality procedures, and commit to a cause. This is where governance comes into play, referring to the processes and structures through which an organization or company makes decisions, sets policies, implements actions, and manages its resources. Martha emphasizes that measuring the carbon footprint involves identifying areas of opportunity, training people, and systematizing processes and tasks to obtain reliable results. All of this hinges on governance and is an integral part of ESG actions, which focus on strengthening companies' environmental, social, and corporate governance aspects.

In commercial real estate, sustainability and ESG criteria generate environmental value by reducing or mitigating as many negative impacts as possible. Martha explains that "value is created by integrating sustainability criteria into the design of long-term assets, which allows for savings in investment, development, and operation stages." Examples include LED lighting, skylights, solar panels, and open spaces. Furthermore, Martha emphasizes that value is generated at the financing stage since having ESG criteria or sustainable features facilitates access to green funds, which typically offer low and fixed interest rates.

Why are sustainability and ESG criteria important? For Martha, aside from their economic and environmental benefits, the most crucial aspect for companies is effective risk mitigation.

The specialist points out that a company's social and ecological responsibility should promote common-benefit causes aligned with its business and financial goals to avoid counterproductivity. In this sense, risk mitigation refers to avoiding economic or investment losses due to environmental, social, and governance factors, as well as non-compliance with international regulations and standards.

By reducing these risks, companies avoid potential costs related to penalties, damage to their assets, operational interruptions due to environmental conditions or force majeure, and damage to their reputation and position themselves favorably with investors and customers who value corporate responsibility. In the commercial real estate sector, this ensures the well-being of property users, attracting more tenants, clients, and investors. Ultimately, implementing sustainable and ESG criteria effectively leads to greater long-term profitability.

ESG, Sustainable Certifications, and Accreditations

In 2022, nearly half of the newly constructed offices in the Mexican office market had sustainable features. Photo: Canva.

When discussing ESG criteria, sustainable certifications, and accreditations, we are dealing with distinct concepts, although all play significant roles in sustainability.

On the one hand, ESG refers to the criteria used by investors and analysts to assess a company's environmental, social, and governance performance. This includes ecological risk management, gender equality, diversity in leadership, and business ethics, among others. Although they do not necessarily imply certification or accreditation, ESG criteria are essential for measuring and communicating a company's commitment to sustainability and social responsibility, and they can influence investment decisions.

On the other hand, sustainable certifications and accreditations are recognitions awarded to organizations, products, or services that meet specific standards and criteria related to environmental, social, and economic sustainability. Certifications, such as BOMA, EDGE, LEED, and many others, focus on specific standards and apply to particular assets or practices. In contrast, accreditations, such as GRESB, have a broader focus and evaluate a company or organization's overall commitment to sustainability and social responsibility in various areas. Both are important in the context of sustainability, and the choice between certification or accreditation depends on each organization's specific objectives and needs.

According to Martha, the significant difference between certifications and accreditations is that the former are like individual or self-referential ratings, while the latter are global ratings in which competitors are compared to their peers, whether national or foreign.

Ultimately, both ESG criteria, sustainable certifications, and accreditations support companies' actions based on verifiable data. In other words, they verify the measurements and results that companies claim to have.

Essential Steps to Becoming Sustainable and ESG

Sustainable features and ESG criteria reduce investment risks. Photo: Canva.

Sustainability and ESG criteria require a solid commitment. The first step in implementing them involves conducting a materiality analysis, which means identifying the most relevant issues for a specific company or its stakeholders concerning the environment, social aspects, and governance. This entails assessing the risks and opportunities associated with these issues.

Secondly, it is necessary to establish specific and measurable objectives and goals related to the issues identified in the materiality study. These objectives must align with the organization's strategy.

From there, Martha points out various steps and paths where transparent communication, stakeholder involvement, and training are essential, along with a focus on continuous improvement and adaptation to changes in the business and regulatory environment. These steps help companies operate responsibly and ethically, responding to sustainability demands and their expectations.

The importance of sustainability is on the rise in Mexico. An example of this is the rapid growth in demand for environmentally certified offices. According to data from SiiLA, between 2020 and 2022, there was a significant increase in the construction of new offices with environmental certifications, rising from 33% in 2020 to 48% in 2022.

Despite the interest in sustainable aspects and ESG criteria in Mexico, Martha points out that one of the main challenges in the country is transparency in governance processes, as companies often do not disclose their sustainability and ESG study results. This not only limits information about markets and their players but also restricts competition among companies, as well as cooperation and joint solutions to common problems. Ultimately, this hinders the transformation of the entire value chain in Mexico.

Sustainability and ESG are essential for achieving a more prosperous future in business and quality of life. As time progresses, it becomes increasingly evident that to drive economic development and the commercial real estate market in Mexico, it is crucial to adapt to these standards, integrating responsible and transparent practices that respect the environment and communities, thus ensuring balanced and sustainable progress.

If you want to learn more, visit Footprint 360, explore SiiLA REsource, and contact us at contacto@siila.com.mx.

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