Abstract
Investors are currently obliged to take environment, social, and governance (ESG) issues into consideration as part of their fiduciary duty. As such, it becomes increasingly important to identify sustainable investments that also hold financial value. A sector where this is especially underdeveloped is real estate. This has a lot to do with the obfuscated conceptualization of ESG. The article identifies key gaps in the literature and practice and provides a framework to further the understanding of how ESG factors can add societal and financial value in the real estate sector. A key premise of the article is that the user in the building is grossly overlooked. Drawing on insights from behavioral social science and environmental psychology, the paper explains the role of the user in improving buildings’ ESG, also taking into account the investment value. To conclude, the article makes the case that the transition to user-centered smart real estate is the solution to improving both the environmental (E) and social (S) sustainability of buildings, as well as their investment value. Therefore, practitioners and academics are encouraged to critically evaluate and contextualize the ESG framework they are using as well as the extent to which users are considered and smart technology is employed.
Highlights
In the last two decades, promulgated by the financial crisis and the Paris ClimateAgreement, global concerns about climate change and business ethics have fueled interest in environmental, social, and governance (ESG) issues and their associated risks [1]
The paper draws on behavioral social science and environmental psychology to explain the role of the user in achieving environmentally and socially sustainable buildings, taking into account the financial value this may hold for investors
This paper suggests incorporating user wellbeing in the conceptualization of the social component of ESG for real estate rather than looking at compliance with labor laws and human rights
Summary
In the last two decades, promulgated by the financial crisis and the Paris Climate. Agreement, global concerns about climate change and business ethics have fueled interest in environmental, social, and governance (ESG) issues and their associated risks [1]. The paper draws on behavioral social science and environmental psychology to explain the role of the user in achieving environmentally and socially sustainable buildings, taking into account the financial value this may hold for investors. The third section concludes by making the case that the transition to smart real estate that is user-centered is the solution to improving both the environmental (E) and social (S) sustainability of buildings (ESG factors) as well as the investment value of real estate. It concludes with suggestions for future research and key recommendations for real estate professionals. Governance aspects of ESG criteria are not further taken into explicit consideration in this paper, often implicitly included
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