We are seeing an unprecedented interest in the Environmental, Social and Governance agenda from the real estate industry as a vehicle to mitigate risk and deliver enhanced client service and value.
As a broad barometer EVORA Global, an ESG consultancy which specialises in the real estate investment sector, has grown by around 70% each of the last two years, seeing greater engagement by existing clients, such as larger institutional investors and fund managers, as well as significant take-up by the wider investment management community.
The industry is increasingly becoming more knowledgeable and committed to the ESG agenda and we are experiencing far less “why” and significantly more “what” and “how”. Climate change and global warming is no longer seen as a possibility but a real and present danger. With heightened public awareness more investors are putting pressure on their investment managers to ensure the risks and opportunities associated with ESG are understood and addressed.
The role of GRESB
Another key indicator has been the growth of take-up of the GRESB real estate benchmark assessment. GRESB assesses ESG performance of real estate portfolios globally across all sectors. Now 10 years old, GRESB benchmarks over US$4.1tn (£1.12tn) of real estate assets from more than 1,000 participants.
The 2019 GRESB results presented in London this week showed yet again an upwards trend in benchmark performance with average scores increasing from 48 (out of 100) from its inception to an impressive 72 now. However, if we are to align to the Paris Climate Agreement and achieve a net zero carbon target by 2050, at the latest, then these achievements are barely scratching the surface.
To bring about material change, the industry will need to make a sea change. Many older buildings will require significant interventions, either retrofits or even rebuilds to meet a zero carbon target. In addition, there is a serious performance gap that needs to be overcome where even newly built green certified buildings fail to perform to design standards.
The good news is there is plenty of technology and capability available today which didn’t exist a few years ago to address these enormous challenges.
It is also encouraging to see the industry taking a positive stance through membership of bodies such as the Better Buildings Partnership and the Green Building Council, to name but two which are leading advocates for change in the UK.
Stepping up the pace of change
However, the scale of the challenge requires an industry-wide willingness to adopt new ideas and move more decisively than the cautious pace we have seen historically, where only the most basic interventions are implemented.
In time, we can undoubtably anticipate far tougher regulation from governments, even with the current state of UK politics. In the meantime, we will need to rely on voluntary disclosure.
It is, I think, significant that the Principles for Responsible Investment, an international collection of some of the world’s leading investors, will, from next year, require all its signatories to identify the climate risks and opportunities they expect to face and outline the financial impact of these in their annual reports, consistent with the Task Force on Climate-related Financial Disclosures.
It is reasonable to assume it will not be long before such financial disclosure becomes a legal reporting requirement and all companies will be faced with clear economic reasons for changing behaviour.
Landlord and tenant collaboration
Although of immense importance, achieving net zero carbon is only part of the ESG story. For a building to be sustainable, most importantly, it must be occupied. If we consider buildings as providing a service, it must meet the needs of the occupier both now and in the future.
Greater collaboration between the landlord and tenant is required to ensure the right outcomes are achieved, especially as we see a change in expectations where healthy, comfortable and productive environments are considered the norm rather than a talking point.
So, while initiatives such as the GRESB benchmarks have mobilised the industry and helped provide guidance as to where to focus time and resources, perhaps now is the time to consider a recalibration of the scoring of such benchmarks.
Following recognised practice should only be the start and we need a far greater emphasis on actual outcomes, not just intentions. It is the actual performance of a building in its carbon emissions, the health and wellbeing of its occupants and its adaptability to change that matters if we are to make real progress on this agenda.
Chris Bennett is managing director and founder of EVORA Global
Read more about how real estate is committing to the climate change challenge >>
