CfAD’s Joanna Frank on supercharging the ‘S’ in ESG reporting

In real estate, mitigating risk while optimizing value has always been king. And in 2022, while ESG has become mainstream in real estate investments, connecting the social “S” to return on investment has remained elusive – until now.

Fueled by the pandemic and post-pandemic markets, optimizing social impact by prioritizing people-centric design and operational strategies is now proven to respond to tenant demand, increase Net Promoter scores, occupant performance, wellbeing and the bottom line – real estate value. Occupant health is now a business imperative, where the “S” is fast becoming integral to every real estate company’s ESG strategy.

Fitwel’s benchmarking study, conducted across three major asset classes – commercial, residential and industrial – in partnership QuadRealProperty Group, demonstrates a direct correlation between the health-promoting strategies in the Fitwel standard and tenant satisfaction.

QuadReal benchmarked a subset of its portfolio against the Fitwel standard to garner insights into the correlation between value creation and key metrics summarizing health impact across seven categories, originally identified by the US Centers for Disease and Control.

Healthy tenants, happy tenants

The study found that properties which made broad investments in health delivered big in tenant satisfaction. For example, projects that implemented healthy food access strategies were associated with higher median property recommendations and projects that executed operational strategies were associated with a higher median property recommendation score. Strategies like these helped increase QuadReal’s Net Promoter Score, evidence that occupant satisfaction goes beyond tenant amenities.

This case study reveals the value of using Fitwel benchmarking to increase your ESG “S” rating at both an asset and entity level as the industry seeks to future proof investment.

Fitwel has published a Guide to Measuring “S” that effectively supports the real estate industry in quantifying the social aspect of ESG. This resource identifies the entity level “S” metrics in five key areas for real estate alongside the practical asset level health-promoting Fitwel strategies.

To accompany the guide, Fitwel published the GRESB Crosswalk to facilitate immediate adoption of an “S” strategy to improve ESG ratings. The tool cross-identifies strategies with ESG framework GRESB Real Estate Assessment. By using health strategies and tools like those provided by Fitwel as the basis to measure “S” performance, it is possible to effectively increase ESG scores and mitigate material risk across real estate assets and portfolios.

The Fitwel-ESG Crosswalk tool identifies a range of strategies that can be implemented by developers and owners both in the design phase of new construction or for retrofits that can ultimately increase their ESG scores. The tool helps to identify which strategies overlap with popular ESG scoring frameworks like GRESB.

Some of these strategies include location optimization, amenities that improve the health and productivity of spaces and programming and evaluation design to improve tenant retention. While these strategies are easily implemented, Fitwel is the first to tie all these strategies back to the health and wellbeing of the occupants which ultimately drives portfolio-wide value.

The Fitwel platform’s efficacy and authority stem from the Center for Active Design evidence and data-backed methodologies employed by a world class research team which includes the CDC as our research and evaluation partner. To create these effective tools for real estate investors, the research team identified design and operational strategies that enhance buildings to impact not only human health, but also influence environmental sustainability and social equity.

This approach was informed by the public health concept of “co-benefits” and specifically drew on research conducted by Adele Houghton, a doctorate of public health candidate who works at the intersection of public health, climate change and the built environment, and who also sits on CfAD’s Research Advisory. She applied a “co-benefits” framework to show how health-promoting design and operational interventions could also advance environmental sustainability, climate mitigation and adaptation and social equity.

The CfAD team applied this thinking to identify specific Fitwel strategies that not only promote health but also mitigate risk, maximize value and overlap with notable ESG frameworks such as GRESB, GRI, SASB, TCFD, and UN SDGs.

As evidenced by the GRESB 2022 Real Estate Assessment Results, companies that certify and benchmark with Fitwel see higher GRESB scores.