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ESG dialogue in real estate converging on employee health

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ESG dialogue in real estate converging on employee health

Environmental, social and governance considerations are beginning to coalesce around employee health and happiness, as the move to implement green building and socially conscious initiatives has moved beyond energy-cost savings.

At an iGlobal-sponsored conference in New York City, sustainability experts cited worker wellness as a new focus in the evolving ESG movement in real estate.

"The conversation used to be just about energy efficiency and sustainability. ... That's really broadened to be about the experience of people in the workplace and the wellness of people as part of this broader definition of sustainability," said Elena Alschuler, director of real estate strategy at View Inc., a tech company that manufactures so-called smart windows.

Dana Schneider, senior vice president at Jones Lang LaSalle, called corporations' renewed interest in employee health a "megatrend" that is here to stay.

"Corporate interest in the wellness of their employees the health, productivity, happiness — I feel like it's something we've been looking at for decades, and now it has a rating system for it," she said. "It's a good thing."

Dan Egan, vice president and head of sustainability and utilities at Vornado Realty Trust, said tenant requests for proposals now include a laundry list of ESG-related questions where previously there were only brief inquiries about energy efficiency.

Prospective tenants want to know details about building materials, recycling programs, indoor air and water quality and even the methods used to measure them. At stake is not merely higher rents, but continued relevance in the space, and landlords with detailed accounting of such items will gain an edge, Egan said.

"The ability to provide those [answers] without any questions asked in an RFP process automatically shortlists you for space," he said.

Ari Frankel, assistant vice president of sustainability and high-performance buildings at Alexandria Real Estate Equities Inc., a landlord of high-tech office and lab space, said a high ESG hurdle has become standard for the company, given the caliber of its tenants' payroll and the options they have in the marketplace. Clearing that high hurdle, while potentially costly, is good for business.

"If you've got a healthier and happier workforce, it's just going to be better at making money," Frankel said.

While core urban markets on the coasts and the developers and landlords that dominate them have led the ESG dialogue in the U.S., the movement is spreading to all reaches of the country, Frankel said.

"I think it's a red, white and blue issue. ... This is happening all over the place," Frankel said.