The business landscape in the United States is constantly changing, with companies facing increasing pressure to adopt sustainable and resilient practices. This is particularly true for commercial properties, which play a crucial role in the economic and social fabric of the country. In this dynamic environment, the concepts of Business Continuity (BC) and Environmental, Social, and Governance (ESG) principles have emerged as critical factors for success. This report explores the intersection of BC and ESG. It provides insights into how commercial property stakeholders can leverage these concepts to enhance their resilience, attract investors, and contribute to a sustainable future.
Before delving into the complexities of BC and ESG, it's essential to establish a firm understanding of emergency response planning, a critical component of BC. Emergency response planning focuses on immediate actions to protect life and property during a crisis. For commercial properties, effective emergency response plans should include:
The Cybersecurity and Infrastructure Security Agency (CISA) provides valuable resources and recommendations for commercial properties to enhance their emergency response planning. Resources such as BIPS 06/FEMA 426, a helpful reference manual for new and renovated buildings, and Ready Business, which assists businesses in developing preparedness programs, offer valuable tools and guidance5. By implementing these measures and utilizing available resources, commercial properties can effectively respond to emergencies, minimize damage, and ensure the safety of occupants.
Business Continuity Planning (BCP) encompasses the creation of systems of prevention and recovery to deal with potential threats to a company. In the context of commercial properties, BCP focuses on ensuring the continued operation of the property in the face of various disruptions, such as natural disasters, cyberattacks, and pandemics.
Recent research indicates that while most companies recognize the importance of BCP, there is a concerning trend of infrequent updates to these plans. A study by Disaster Recovery Journal found that 51% of respondents update their BCPs only once per year, falling short of the ideal of continuous updates as business functions and services evolve6. This decline in update frequency is particularly concerning given the increasing complexity and interconnectedness of business operations, highlighting the need for a shift in mindset towards continuous adaptation and improvement in BC planning.
The use of technology in managing BCPs is also an important trend. The same study found a positive shift towards commercial software for managing BCPs, with only 38% of respondents relying on internal tools like documents and spreadsheets6. This suggests a growing recognition of the value of dedicated software in streamlining BCP processes, improving efficiency, and ensuring better preparedness.
For commercial properties, third-party vendors play a crucial role in maintaining operations. As such, ensuring that these vendors have robust BCPs in place is essential7. This requires property managers to conduct thorough due diligence and incorporate vendor BCP requirements into their contracts.
Furthermore, National Preparedness Month, observed annually in September, serves as a critical reminder for commercial property and facility management professionals to prioritize proactive planning for disasters and emergencies8. Recognizing that disasters can strike unexpectedly, being prepared is not merely an option but a necessity for ensuring business continuity and minimizing disruptions.
ESG (Environmental, Social, and Governance) refers to a set of standards evaluating a company's operations based on its environmental impact, social responsibility, and governance practices. These factors are increasingly used by investors to screen potential investments and assess long-term sustainability.
In the US commercial real estate sector, ESG is gaining significant traction. Investors and developers are increasingly incorporating ESG factors into their decision-making processes, recognizing the long-term value and risk mitigation benefits9. This includes assessing the vulnerability of properties to climate-related risks, implementing strategies to enhance resilience, and selecting sustainable building materials.
This shift in investment theory acknowledges that externalities, such as environmental and social impacts, play a crucial role in mitigating risks, adding value, and driving returns10. Investors are moving beyond a narrow focus on shareholder returns to consider the broader impact of their investments on society and the environment.
Tenants are also playing a key role in driving ESG adoption. They are increasingly prioritizing sustainability and wellness features when selecting office spaces, leading to higher occupancy rates for ESG-compliant properties9. This trend underscores the importance of ESG in attracting and retaining tenants, contributing to the financial performance of commercial properties.
Moreover, there is a growing focus on the "social" pillar within ESG, particularly in areas such as data security and supply chain labor management11. This highlights the increasing importance of social factors in business operations and their relevance to commercial properties.
Several programs and organizations provide frameworks and green building certifications that support the collection of ESG metrics and guide the monitoring and evaluation of ESG programs. LEED (Leadership in Energy and Environmental Design), originating from the U.S. Green Building Council, is one of the most widely used green building rating systems12. LEED assigns points to buildings based on sustainability factors like building materials, air quality, and energy consumption, providing a standardized framework for assessing and improving environmental performance.
The Securities and Exchange Commission (SEC) is also increasing its focus on ESG data reporting, putting pressure on commercial real estate to decarbonize portfolios13. This regulatory push further reinforces the importance of ESG adoption and the need for companies to proactively address their environmental impact.
Despite the overall positive trend, there are challenges and regional variations in ESG adoption. Some states have shown resistance to ESG initiatives, particularly those related to climate change14. However, states like California and New York are leading the way with robust standards and incentives for ESG practices.
While often considered separately, BC and ESG are inherently interconnected. ESG factors can significantly impact a company's ability to maintain business continuity15. For example, a company with strong environmental practices may be better equipped to withstand climate-related disruptions, while a company with robust social and governance practices may be better positioned to manage reputational risks and maintain stakeholder trust during a crisis.