Companies are Feeling the Urgency of ESG Accounting

2 min read
May 9, 2024
CoStar Real Estate Manager Blog

Companies are Feeling the Urgency of ESG Accounting

The new era of ESG is no longer coming soon ... it’s here for the commercial real estate industry. And that means it’s time for action.   

The US Security and Exchange Commission and the European Union requirements for environmental, social and governance reporting are planting deeper roots.

When California rules and the Task Force on Climate-Related Financial Disclosures are added, it affects hundreds of thousands of companies. That number will continue to grow as different regulatory bodies develop their own requirements for ESG performance and climate-related risks.  

Data Vault
ESG regulations are coming fast

How are the EU, SEC and California handling it?

So, what does this mean for you? In addition to international pressures, U.S. companies are increasingly feeling the urgency to produce sustainability disclosures and revamp financial reports. And SEC requirements for ESG accounting, for better or for worse, are now official.  

Risk management  

Regulatory uncertainty is just one of many long term ESG reporting challenges U.S. companies are facing. Even more urgent: The need to manage risks AND opportunities, especially as it pertains to the environmental side of ESG.  

After all, climate change is among the top risks facing commercial real estate portfolios. According to McKinsey and Company, $7.5 trillion in total global property value is at risk of “stranding.”: major write-downs because of climate risk or inability to decarbonize.  

Not having the right data in an integrated and audit-ready state could leave your portfolio vulnerable to climate-related transition risks. Risks like changes in energy sources and physical risks such as natural disasters like wildfires or extreme flooding.  

Double materiality?   

If you operate under the EU guidelines, your disclosures must now account for double materiality. This is the concept of reporting on the internal impact of your financial materiality and the external impact of your climate-related materiality when it comes to ESG in commercial real estate.   

If you fall under SEC guidelines, your financial statements are a bit different.  Investor/financial materiality guides the SEC rules. This means they only need to disclose factors that will affect a company's performance or decision-making.   

Mandatory ESG disclosures are not a “tomorrow” problem. Your organization needs the tools and capacity to identify challenges in each region, understand your responsibilities, and act to make sure your CRE carbon-related data is up to the task.  

If you want to prepare even further, download the free eBook from CoStar Real Estate Manager.