ESG - Governance and digital transformation in the real estate industry
Updated: Jan 18, 2022
One important part of the ESG initiative is the corporate governance, which as well as the other two components has many perspectives and cornerstones depending on the industry specifics. In this article we will focus on the perspectives of the real estate industry and the corporate governance issues when it comes to digitalisation and digital transformation processes.
ESG and Governance
Understanding governance risks and opportunities is crucial when it comes to decision making, as poor governance can have a significant financial consequences for companies.
Digital transformation is without a doubt heavily needed when it comes to making sure, we are able to connect our data driven approach to smart buildings with data driven management and decision making systems within the companies them selves.
Current digital transformation stage and ESG in the real estate industry
If we take a look at the real estate industry sector we can find companies in different stages of digital transformation process:
starting with the rare ones which introduced very well functioning company - wide enterprise or cloud solutions managing markets, portfolios and risks through completely digitalised environments to
those, which are still in majority and stuck in the middle of it or even
those still relying to the old systems.
Before we go into details - what does digital transformation in fact has with the good (digital) governance of the company?
The fact is that the complete global economy is undergoing a digital transformation process, This is demanding reimagining our business using digital technologies. It means we are about to create new processes, which make sense as well as to digitally adjust the old ones, we assess to be valuable for our business process. It is not just about gathering some data digitally and making a digital interface, but about major strategic change which should not be only about the technology, but about how to make your business better, faster and more efficient.
The future of innovation, in our point of view, lays in the power to disrupt traditional business processes while combining them with the optimal technological solutions, which have a potential to positively impact the growth. In the real estate industry we are talking about ever growing need to use relevant market and portfolio data in order to allow decision makers to make objectively assessed decisions, to offer predictive overview, to enable smooth digital connections and communication between geographically disbursed portfolios and teams....
Besides corporate governance elements, we are discussing in this article, it is important to note that smooth corporate digital governance also helps companies to reduce the need for traveling and positively impact carbon footprint which is one of the basic points of ESG efforts.
Digital transformation challenges real estate companies are facing
Somehow, along the way, the process of digital transformation has become a synonym for data gathering. Leading this efforts under the moto "data is gold" companies are often stuck in the data gathering process for months or even years. The fact is that there is lots of data out there - the challenge companies have is to determine which are the crucial key indicators and where their main risks/opportunities are so they could focus on selected and relevant data gathering.
On the data analytics level companies are facing two challenges:
1. Gathering too much often unnecessary data makes the data analytics process hard from very beginning as there is no pre-selection of the key indicators when it comes to risk and opportunities, which makes it very hard to differ signal from the noise in the analytical stage.
2. Using insufficient or too generalised analytical tools which are not able to offer quality insights respectively not leveraging quality data, which would help the company to make a reliable measuring of the performance and impact of the other factors systematically. This often offers non-relevant and non-conclusive insights which are not enough to help the company run its every day business. This causes that many of them will still have to make a parallel system using lists and Excel formulas to be able to gave a practical grasp over the important business topics, which puts them back to the starting point or business stage of 20 years ago.
Based on previous two challenges, the results are often insufficient and unreliable, as there are too many different output data results, which are not necessary strategically focused on the current or upcoming business challenges and are too complicated to use/respectively to combine with the data which is moving through the Excel lists.
Digital transformation challenges and ESG Governance
If we assume that in 2022 the corporate governance will have to be, first of all, achieved and proved through the digital processes, the challenges real estate industry is facing, when it comes to the digital transformation are most likely to have a direct negative impact to achieving the ESG goals.
As we lately more and more talk about ESG, we also have to be aware that governance Risk and Compliance issues are coming as first to be implemented, before we can talk about efficiently approaching issues such as environmental protection or the social part, which is focused on human rights element. If the company does not gather relevant data and analyse it in appropriate way, the system will be not in the position to offer relevant results which would mean accruing additional risks.
Conscious organisations have ESG related outcomes they want to achieve as part of their corporate objectives, which always includes GRC as integrated collection of organisational capabilities to reliably achieve objectives while addressing uncertainty. This is why we have to see risk management as a very important part of ESG efforts.
It is to be noted that ESG governance element, also when it comes to digital transformation represents something else for different stakeholders. If we focus on the investors, it is clear that they hope to achieve better returns while achieving costs reductions, so more shareholder value could be created.
For investors, before everything else, it is important to be able to rely on the corporate sustainability which has to be obvious from the data it provides through transparent and reliable processes, especially when it comes to the decision making and taking risks/using opportunities. This overview is to be achieved through digital interface where informations are easy to find, reliable and transparent.
The fact is that when we talk about corporate sustainability issues we are facing a picture which is very complex while we are still dealing with immature reporting systems. Besides the fact that companies have no idea what information to include in this reporting, overcomplicated digital transformation procedures are making it impossible in the first place.
The main challenges companies have when it comes to the current digital transformation stage:
preventing engaging human and time resources for engaging in digital transformation processes without any usable results
enabling C-suite level to have a digital overview over important issues as well as to make data driven and objectively informed decisions
enabling team members, including C-suite to communicate digitally in an efficient way
increasing overall corporate transparency when it comes to the way decision are made and risks/opportunities are handled
So it is clear that the governance part has a direct connection with digitalisation and digital transformation processes of every organisation and that the ESG standards are becoming a main assessment criteria for investors and other stakeholders.
Efficient and ESG Governance compliant digital transformation should therefore enable real estate companies to leverage relevant data systematically:
using solutions which enable them to focus on real estate relevant key parameters,
using the optimal analytical tools which have a potential to help decision makers to make informed and objective strategic decisions as well as to
effortlessly communicate them with their team members and employees.
Taking into account that the reality of many real estate companies are either too complicated internal structures, which then transfer into non-efficient digital efforts either lack of human and other resources to start digital transformation process at all, we are in the opinion that SaaS solutions focused on the industry specifically may help to overcome this challenges. The SaaS cloud solution is easy to implement and it is able to offer transparency regarding all of the processes investors and other stakeholders are interested in when it comes to ESG Governance compatibility.
The main challenges we are facing in this respect are to make scalable systems which are introducing simple and integrated approach, replacing filling of the forms with automated solutions, which are available to all of the team members and elevated to the board level.
In one of the next articles we will be discussing this topic and how SaaS cloud solutions could be a perfect solution for achieving ESG Governance goals within the real estate industry.