Hudson Pacific Properties, Inc. (NYSE: HPP) and Vornado Realty Trust (NYSE: VNO) are participating in the first phase of a pilot program that seeks to create a standardized benchmark approach for including social metrics within ESG reporting.
Operated by Fitwel, the healthy building certification platform, in partnership with sustainable technology and services company EVORA Global, the Certified Metrics pilot program is a direct response to industry demand for a way to quantify and validate the social component of ESG for real estate investors, in a way that could be applied universally.
Joanna Frank, Fitwel president and CEO, says the project has taken about two years to complete. Certified Metrics, she explains, will enable an entire fund or portfolio to be assessed against an evidence-based standard, while generating data insights about social and material risk. Performance will be verified through a third-party review and can then be compared to peers. Certified Metrics can be used across funds and portfolios with a variety of asset types.
“Fitwel’s entity-level solution builds on the latest health evidence base by, for the first time, connecting health outcomes with economic value, pointing to clear substantiation of value and risk,” Frank says.
Frank notes that Fitwel now has a substantial data set around the attributes of real estate, its design, and operational attributes. “We have taken that information and overlaid it with financial data, so we can now identify which attributes correlate with the greatest return on investment,” Frank says.
With social metrics still in their infancy, “what matters most is where you stand in relation to the rest of the market," Frank says. “This is the appeal of Certified Metrics—in offering a much-needed pathway for companies to maximize the value they are creating by prioritizing health.”
Natalie Teear, senior vice president, innovation, sustainability and social impact at Hudson Pacific, notes that the environmental aspect of ESG has been fairly well-defined for some time, whereas the same cannot be said for the social aspect. Certified Metrics, she says, is “helping us nudge the real estate industry toward more alignment about what the core social metrics are and building out the underlying methodology to define them.”
In addition to providing certified data on social measures, equally important for Hudson Pacific is that Certified Metrics will allow the REIT to also get a better understanding of the various social impacts across the portfolio, Teear says. “I’m hopeful it will show us more about where the gaps are.”
Lauren Moss, senior vice president and chief sustainability officer at Vornado, says the REIT is “looking forward to getting a better understanding of how social metrics play into the success of real estate.”
By participating in the pilot scheme, Moss says the hope is that “we will gain some knowledge and guidance on how we continue to shape the existing offerings in our buildings so that we are able to confirm we’re impactful in the work we’re doing, and not just from a carbon reduction standpoint…we want to understand our baselines and where future opportunities exist.”
Moss adds that if investors can see the impact of Vornado’s investment in highly-amenitized buildings that are focused on tenant experience, “that should resonate with them and underscore that tenants will continue to want to work with us.”
The full pilot cohort, to be announced shortly, is expected to focus on six targeted outcomes with proven impact on health and financial value: Supporting a high-quality environment; creating climate change resilience and preparedness; engaging with occupants and community stakeholders; promoting equity; optimizing assets for walking and active transportation; and enhancing access to natural elements.
Meanwhile, Frank noted that the strongest motivation for having certified data around social impact metrics such as health and wellness is coming from Europe. “That doesn't mean that we are only seeing demand in Europe because a lot of U.S. real estate companies are obviously raising funds out of Europe, but it is being driven by Europe's standards around the quality of data,” she said.