The ESG conversation in commercial real estate often focuses heavily on the "E" for Environmental, leaving the "S" for Social and "G" for Governance as afterthoughts. There's a constant buzz around sustainability initiatives and community engagement, but the most forward-thinking companies understand that a robust Governance strategy is critical. Strong governance not only signals a company's commitment to ethical practices but also leads to higher investor confidence, better tenant relationships, and improved operational efficiency.
Industry-leading owners are increasingly viewing Governance strategies as a cornerstone of their ESG programs, recognizing that transparent and accountable operations drive significant value. At the VTS Accelerate conference in 2024, industry experts like Shannon Loew, VP of Corporate Real Estate and Facilities at Amazon, emphasized that governance isn't just about compliance; it's about building confidence with stakeholders. By embedding strong governance practices, companies can enhance their reputation and performance, ultimately benefiting investors and tenants alike.
In this blog, we dive into how owners and operators can leverage technology, specifically VTS Activate, to bolster their Governance program goals with realistic initiatives that deliver outsized impacts and measurable returns.
Regulatory Pressures and Stakeholder Expectations for Good Governance
Regulatory expectations regarding Governance have intensified. Both in the United States and Europe, there's a growing emphasis on transparency, accountability, and ethical business practices. The Securities and Exchange Commission (SEC) has introduced stricter disclosure requirements related to corporate governance, emphasizing the importance of risk management and ethical conduct.
In Europe, regulations such as the EU Corporate Sustainability Reporting Directive mandate detailed disclosures on various ESG metrics, including governance practices. This regulatory environment encourages property managers to adopt comprehensive Governance strategies that can withstand scrutiny and demonstrate tangible benefits to investors and the broader community.
Investors are increasingly scrutinizing companies' governance structures, seeking assurance that organizations are managed effectively and ethically. According to a survey by PWC on the economic realities of ESG, “nearly 80% said ESG was an important factor in their investment decision-making.” (PWC). This shift reflects a broader trend where transparency and accountability are directly linked to a company's valuation and reputation.
By proactively addressing these regulatory and stakeholder expectations, property teams can enhance their reputation, mitigate risks, and build stronger relationships with tenants and investors.
Implementing Effective Governance Practices Internally
Does improved governance drive investor confidence and operational efficiency? A study by the National Bureau of Economic Research found that, on average, the market reacts to the passage of a governance-related shareholder proposal with positive abnormal returns of around 1.3 percent on the day of the vote (National Bureau of Economic Research). This suggests that robust governance not only enhances compliance but also contributes to financial performance.
Establishing Clear Policies and Procedures
Establishing clear policies and procedures is a fundamental step in strengthening governance. Developing a comprehensive governance manual that outlines all policies, procedures, roles, and responsibilities ensures consistency and integrity across operations. Engaging a cross-functional team to review and update these policies regularly keeps them aligned with current regulations and industry best practices. Distributing the manual company-wide and providing training sessions helps all employees understand and adhere to these guidelines.
Leveraging Technology for Compliance and Reporting
Leveraging technology is crucial for expanding the reach and visibility of governance initiatives. Communication platforms enable organizations to share governance policies, ethical guidelines, and updates directly with tenants and visitors, fostering transparency and trust. Implementing VTS Activate, for example, allows property teams to create centralized communication hubs where governance information is readily accessible. Regular information updates and interactive features keep stakeholders engaged with the company's commitment to ethical practices.
By using technology to communicate governance efforts, organizations can ensure that tenants and visitors are aware of the standards upheld within the building. This openness not only enhances the tenant experience but also reinforces the company's reputation for integrity and accountability.
Promoting an Ethical Culture
Promoting a culture of ethics and accountability within the organization is equally important. Launching an ethics training program that includes workshops, seminars, and e-learning modules fosters an environment where ethical practices are valued and upheld. Establishing an anonymous reporting system encourages employees to voice concerns without fear of retaliation. Recognizing and rewarding ethical behavior reinforces the importance of integrity within the company culture, encouraging adherence to governance standards.
Enhancing Transparency and Accountability with External Stakeholders
Governance extends beyond internal operations; it encompasses relationships with tenants, investors, and the broader community. Transparent communication and accountability are key to building trust and fostering long-term partnerships.
Transparent Communication with Tenants
Providing tenants with clear information about building operations, policies, and any changes that may affect them builds trust and enhances tenant satisfaction. Using tenant engagement tools like VTS Activate allows property managers to create a centralized communication hub where tenants can access updates, policies, and announcements. Scheduling regular e-newsletters and notifications keeps tenants informed and engaged, while encouraging feedback through surveys and implementing changes based on tenant input strengthens tenant relationships.
Collaborating with Industry Associations
Collaborating with industry associations and adhering to recognized governance standards can further enhance credibility. Joining relevant industry groups, participating in governance committees, and pursuing certifications like GRESB or LEED that include governance components signal a commitment to best practices and continuous improvement. Displaying these credentials prominently in stakeholder communications demonstrates dedication to high governance standards.
Leveraging Data Security and Privacy Measures
Data security and privacy measures are critical components of governance. In an era where data breaches are a significant concern, implementing robust security protocols protects sensitive information and complies with legal requirements. Conducting a comprehensive data security audit to identify vulnerabilities, implementing advanced encryption and secure access controls for all digital platforms, and providing regular cybersecurity training for employees mitigate risks and build confidence among tenants and investors.
VTS Customer Example: Royal Centre, Warrington PCI
At Royal Centre, a premier office complex in Vancouver, governance transparency is a priority. The property management team is using VTS Activate to put governance-related documentation front and center for tenants and visitors. By openly providing access to policies, compliance documents, and ethical guidelines through the platform, they ensure everyone is informed about the building's governance standards.
Moreover, Royal Centre fosters open communication between tenants and property teams. Tenants can easily reach out with questions or concerns, and receive prompt responses from management. This direct line of communication enhances trust and demonstrates the property's commitment to accountability and responsiveness.
By leveraging technology to make governance information accessible and encouraging dialogue, Royal Centre strengthens relationships with tenants and sets a benchmark for transparency in the industry.
To learn more about the Social component of ESG in CRE, check out the second blog in the series: The “S” in ESG: Social Initiatives to Maximize Tenant and Community Engagement
For more information about VTS Activate and how it can help you, visit our product page or book a demo.
