Strata should embrace ESG.

Strata is big business. The industry represents $1.3 trillion of property value generating over $7 billion a year in associated maintenance and management fees. Yet the reputation of the industry is in question.

Australia’s strata industry should embrace Environment, Social and Governance (ESG) principles, and quickly.

Often thought to belong at the big end of town, ESG principles, also referred to as sustainability, should be integrated into strata business strategy to ensure longevity, loyalty, and profitability.

This year Australia’s national broadcaster, ABC, has led two investigative reports on the industry, and with more to come.

In March 2024, high-profile Netstrata was caught charging excessive fees and taking kickbacks. The ABC investigation identified a decade-long history of self-dealing at the company, including extensive use of wholly owned insurance and maintenance companies. Netstrata’s managing director Stephen Brell was forced to step down from his position as the NSW president of the Strata Community Association (SCA).

The ABC then sought submissions from the strata community. More than 2,000 responses were received with details of hidden charges, phantom fees and suspect deals with contractors (and further heat on the replacement NSW president of the Strata Community Association). Four Corners aired “The Strata Trap” in September, outlining just some of these grievances. The ABC continues to field submissions on the strata industry.

While some of the dealings highlighted might be considered legal, they don’t pass the pub test of what is ethical or reasonable. It is inevitable the strata industry will be subject to further regulation.

ACCC chair Gina Cass-Gottlieb has condemned undisclosed arrangements as deceptive and called for all strata insurance commissions to be banned (which ultimately may undermine competition in the industry). While the NSW government also unveiled new legislation it claimed would strengthen oversight of the industry and beef up strata managers' disclosure requirements, the ACCC states this does not go far enough.

At least one-in-six Australians now live in strata-titled properties such as apartments and townhouses, and there has been a 7 per cent growth in the number of properties in the last two years, according to UNSW’s City Futures Research Centre. Three million Australians own apartments and belong to some 350,000 strata schemes around the country — the majority are run by professional strata management companies.

Furthermore, there is a rising trend in apartment living. Medium- and high-density development in established suburbs is being spruiked as the solution to Australia's housing crisis. Australia will need to build more than twice as many apartments per year to house our surging population and address the country’s rental and housing affordability crises. Nearly half of Australians are expected to live in strata accommodation by 2050.

In other words, there is a storm on the horizon. The industry must prepare itself to lift its reputation and standards to meet growing public expectations in an expanding market. In doing so it will elevate reputation, enhance competition, and avoid overly draconian regulation that will impede the industry’s progress.

Here is how ESG principles can be integrated into the business strategy to ensure longevity, loyalty.

E. Understanding environmental issues will help strata organisations ensure strata services are fit for purpose in our changing environment, beyond renewable energy and electric vehicle charging. This includes preparation for the impacts of climate change, and the electrification of our economy.

S. Incorporating the social needs of strata living into the business strategy will give strata businesses a competitive advantage as communities increasingly move to strata living, and the expectation on these accommodations, and their facilities evolve.

G. Improving governance in the industry is an absolute necessity. Current practices of some, yet not all, of the industry are unacceptable in the public eye. Regulation is inevitable however this can be moderated if the industry is willing to show it is able to adhere to core standards of practice.

Done well, sustainability adds value, saves costs and generates revenue. Whether an industry-wide approach is taken, or individual organisations within the industry seek to differentiate themselves from the pack, there is no time to hesitate.

To learn more about how to do this contact Kate@katemchugh.net.