Real estate is often perceived as lagging behind other asset classes, but in tackling environmental, social and governance (ESG) targets the evidence shows something different.
The plethora of certifications, standards and frameworks developed for real estate over the last two decades suggests a widespread effort to make buildings more sustainable.
Against a lack of regulation, the industry developed building certifications and sector-specific ESG standards on top of more general investment standards. This has driven progress, especially in the early years when industry associations played an important role in facilitating benchmarking.
With the introduction of regulation across regions, countries and cities, navigating this space has become more complicated. Many in real estate are overwhelmed by the number of certifications, benchmarks, standards and ratings.
This is further complicated by the growing number of bespoke reporting requests by investors. This rapidly increasing reporting burden could be distracting from real action.
The Urban Land Institute (ULI), the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) and the United Nations Principle for Responsible Investment (UNPRI), supported by PwC and a range of experts from real estate fund managers and investors, have been working together to map out the evolving landscape, providing the industry with a practical guide.
The aim was to achieve more convergence, but it is not that simple. Every standard serves a different purpose and applies to different jurisdictions and types of investors.
Depending on your corporate and ESG strategy, there are ways to streamline the different standards used, but each organisation needs to develop its own strategy, define its ambitions and choose the frameworks and standards that fit best.
Recently regulation has stepped up and much more is coming globally. The EU has been leading with its taxonomy, but many other countries, like the UK, Singapore, Japan and the US, are also introducing new regulation and more locally specific regulation is on the way, such as New York’s Local Law 97.
Clear trends are appearing. With a strong focus on the actual footprint of the built environment, movement is being seen from theoretical performance to the measurement of actual environment performance based on credible data.
The data becomes fundamental and that demands consistency in what and how we measure. Collaboration among different stakeholders, including occupiers and landlords, is key.
So far, standards and regulations focus predominantly on environmental impact. However, with the built environment having such a significant social impact, there must be a way to measure and objectively recognise the contribution made in this field.
While regulation generally helps create a level playing field, it needs to drive the right behaviour, which is not always the case. Investment regulation tends to be generic and doesn’t recognise the specifics of real estate.
INREV has just written an excellent report on the Sustainable Finance Disclosure Regulation (SFDR), issued by the EU. The SFDR categorises the sustainability credentials of investment funds.
Within an ‘Article 9 fund’ – the highest level – the assets must already be 100% sustainable, which refers to new buildings or those already fully retrofitted. This completely disregards the huge transformation needed, and which avoids massive embodied carbon emissions.
While standards and certifications have helped the industry to make progress, it is time to assess them on their merits. Educate yourself on the purpose of each framework and standard and select those that most closely align with your corporate and ESG strategy, working within your ecosystem of suppliers, customers and partners to reach a level of consistency.
Alongside your chosen reporting framework, focus on the goal to be fully net zero by 2050 at the latest and what’s needed to get there. Don’t get distracted along the way by nice labels but concentrate on the building’s actual environmental performance, in every aspect, and improve it. Only that way will we achieve the targets set.
Lisette van Doorn is Europe chief executive of the ULI
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