Measuring Diversity? ESG, DEI Push Has Companies Seeking Benchmarks

As more companies seek to advance and amplify diversity within their ranks, CRE associations are turning to familiar benchmarking tools similar to those the industry has used for years to quantify sustainability efforts.

That's why in the last few months, new systems have come out seeking to measure progress and growth in diversity, equity and inclusion, but unlike green building, many nuances of diversity can't be easily counted or calculated.

Even still, more of these programs are likely to crop up in the near future as companies try whatever they can to put a number on their diversity efforts, equity and inclusion consultant Melina Cordero said.

“When you're asking for investment or you're making an investment in something new, a lot of times there's a need to prove that there's a return on that investment,” Cordero said. “If we're talking about investing in DEI, in new programs or in a chief diversity officer, you're trying to justify or prove budgeting. Leaders want to say, this is why we need to keep allocating money towards this.” 

That’s especially difficult to do with DEI, which, to a certain degree, is qualitative rather than quantitative. But efforts to measure DEI progress happen, in large part, because “companies are pretty much obsessed with being able to measure progress and report progress,” Cordero said. 

Atlanta-based nonprofit SEAM Inc. in November launched a program that allows companies to obtain a diversity certification for their buildings similar to the LEED certifications the industry has known for so long, by awarding points for various diverse components of how a building operates.

And just one month later, the International WELL Building Institute, which launched a health and wellness index for building operators to use, announced its WELL Equity Rating, using 43 metrics to track diversity progress.

“For a lot of our investors, it’s important to measure our progress and see it,” Veris Residential Chief Operating Officer Anna Malhari said. Veris is in the process of securing a WELL Equity Rating through the WELL Building Institute. 

The S in ESG is a lot less transparent than the E, but for a company that bills itself as “a forward-thinking, environmentally and socially conscious real estate investment trust,” the two are equally important, Malhari said. 

The year-old brand is a corporate partner of the WELL Building Institute and has completed other WELL ratings and certifications, but Malhari says that even if that hadn’t been the case, the company would have sought out some kind of rating or certificate that could attach some metrics and numbers to the company’s efforts on the DEI front. 

A big part of that is the desire to distill the efforts Veris is making to advance equity and inclusion.  

“I could write a 20-page report [on what we are doing] and put it on our website, but no one would want to read that,” Malhari said. The rating “is a nice way to simplify.” 

While sources acknowledge a good deal of inclusion and equity are inherently based on how people feel — in their workplace, for example — there are benefits to trying to capture some of the DEI picture in numbers. 

Cordero says that prospective employees, especially members of Gen Z, demand good workplace culture and inclusiveness of the companies where they work. Advances here help with retention and talent acquisition, and being able to show that progress can help in this arena. 

And some major investors, like asset management mammoth BlackRock, have announced ESG-related investment strategies that further motivate companies to find ways to prove their diversity efforts.

Greater adoption of ways to measure DEI progress brings the potential for some significant benefits, Cordero said. Measuring these efforts can mean that there is more information about what companies are doing, which can make transparency and accountability possible, especially when reporting is a component of these measurements. 

Malhari said that because DEI is so multifaceted and has so many areas that are hard to gauge, the framework of a rating is helpful.

“It’s hard,” Malhari said. “I think that’s why it’s so often reduced to workforce statistics or supplier diversity. It’s easier to know about workforce diversity, gender or race, than it is to see whether someone has other issues that are making him feel like this is an inequitable workplace.”

Even those data points that are easier to quantify, like race or gender in the top ranks of companies, are often kept under lock and key. Bisnow’s own reporting on the diversity of top companies across finance, brokerage, REITs and development in commercial real estate found gathering this data from private and public companies to be challenging, with private companies sometimes guarding the information as though it were a proprietary algorithm. 

Investors might be pushing for change in another way, potentially using the law to demand tangible signs of progress on diversity, equity and inclusion. A recent survey from law firm Norton Rose Fulbright found that nearly 30% of more than 430 general counsel and in-house litigation leaders saw their exposure to ESG-related disputes increase in 2022 and 24% of those respondents anticipated that their exposure would only grow in the coming year, BNN Bloomberg reported earlier this month. The firm dubbed ESG among several “class-action areas of future concern.”

The key reasons for the potential litigation exposure, the publication said, were “the absence of clear environmental, social and governance metrics and requirements, and the heightened regulatory scrutiny on the importance of ESG.” 

“Many people think of climate change and the energy industry when they think of ESG,” Norton Rose Fulbright Disputes Partner Rachel Roosth told BBN Bloomberg. “But the physical and transition risks of climate change aren’t limited to one industry, and stakeholders are pushing for more information on a variety of other ESG topics, like waste management, [diversity, equity and inclusion] efforts and risk-management practices.

But for those working to secure capital from institutions or partner with investors, there is skepticism about how these metrics can help them. Both SEAM and the WELL Equity Rating are based on locations and projects. Veris, for instance, is pursuing the rating for all the buildings it owns as well as its headquarters in New Jersey. They do not certify the business itself, as the Women/Minority Business Enterprise certification does. 

Ambiculture Real Estate Advisors Managing Principal Jennifer Taylor said due diligence is not an issue for institutional investors. They have managers whose jobs are to find qualified and high-quality investments. Those managers’ scorecards haven’t changed, Taylor said, and there are still barriers for women- and minority-owned businesses. 

“For me, as an operator, as an investor, as a developer trying to access institutional capital, do I think that getting one more certification is going to be more helpful for me to access capital?” Taylor said. “The answer is no. No, no, no, no, no.”