How does Australia approach the “S” in ESG?

An insight into the social pillar of ESG and its benefits for landlords, tenants and employees.

October 05, 2023

Australia has embraced more of a live-work-play lifestyle in recent decades. At the same time, environmental, social and governance (ESG) initiatives have come to the fore within the office markets. ESG goalsetting is garnering attention as tenants and landlords accept accountability, with increased financial reporting on sustainability, but the ‘social’ side of ESG is also gaining momentum.

Environmental sustainability is undoubtedly the leading pillar of ESG and tenants are committing to office space that can offer strong ‘E’ credentials. JLL Research and Leasing tracked lease expiries with net zero targets in Brisbane CBD. The following chart demonstrates the future demand for sustainable office space, highlighting that more tenants require an office to specifically meet their decarbonisation targets.

Figure 1: Decarbonisation Targets and Lease Expiry Brisbane CBD

Source: JLL Research and Leasing

While ‘E’ holds importance, a greater emphasis on the ‘S’ is now emerging. From the perspective of office tenants, Michael Greene (Executive Director and head of Tenant Representation, JLL Australia) voices that, “When it comes to social considerations, tenants and landlords aspire to build and foster communities, not just a workplace and achieving this goal can be done through a variety of avenues.”

Mr Greene notes that health and well-being factors tend to influence the social pillar. The ease of access to greenery and ‘spaces that breathe’ is prevalent among shared-use areas and building surrounds. Many social initiatives are more widely available in large buildings. Hence for smaller tenants, selecting space in locations where ‘S’ is prioritised can allow these occupants to benefit from the larger community. 

Social objectives can be achieved in various ways at both the precinct and asset level. For example, in Brisbane, major tenants have long been attracted to Fortitude Valley (FV) because the precinct offers excellent social infrastructure, such as a live music scene and retail within walking distance. At an asset level, the recently completed 31 Duncan Street development in FV has a sky terrace and garden to encourage employees to take part in social and wellness activities. Another example is 895 Ann Street, which is set to be completed in 2023 with a rooftop bar, adding to the attraction and engagement of this premises with the broader community.

In the Perth office market, there are plans to construct the world’s tallest office tower built out of timber, which will take the social focus to another level. The tower will include a 500 sqm vegetable garden, dining and entertainment amenities, plus 1600 sqm of communal wellness space surrounding the asset.

The implementation of social initiatives can be strategic and beneficial for many stakeholders. Employees hold a high degree of power in this tight labour market, and younger generations tend to prioritise the social aspect of their workplace. Given this trend, tenants can utilise ‘S’ to enhance employee productivity and satisfaction and lower attrition.

The outcome could see growth in talent acquisition and reduced hiring costs. Meanwhile, landlords who engage with the social pillar aim to attract tenants and reduce the overall vacancy of their assets. Through the expansion of social infrastructure, employees, tenants and landlords are in a position to gain in their relationship with the office.