The integration of ESG factors by the real estate industry is leading to new measurement, reporting and comparability requirements. Comprehensive sustainability strategies require analysis of data on real estate portfolios and lessees, in turn demanding the production and management of significant quantities of data.
Brice Hoffer – Research & Strategy, Real Estate & Private Markets, explains:
“Developing an integrated approach to sustainability within the real estate investment world is, however, a long and complex process. The physical nature of real estate, its legal aspects and its major social and environmental consequences mean that a wide range of data from different sources must be obtained and analysed. This in turn means that investment in digital infrastructure, such as IoT sensors and data management systems, is essential, requiring cooperation among all stakeholders along the industry’s value chain to improve ESG transparency.
“As a result of the great complexity introduced by this change and the investment it will require, real estate investment managers should adopt a proactive approach in this field. Not doing so could cost them dear as increasing regulatory pressure and the swing in the preferences of investors and lessees carry the risk of leading to the gradual obsolescence of their real estate investments and to value loss in the long run.
“The use of new technology is essential if a range of sustainability KPIs is to be efficiently and economically reported on. These digital solutions would ideally be applied along the entire value chain of the real estate industry.
“We can also assume that other ESG factors that are at present mostly ignored will very soon become more significant. In the commercial field, the source of lease revenues – and therefore a sustainability assessment of individual lessees – will in future play a bigger role in the ESG assessment of real assets. The ESG quality of revenue streams on a property is critical, in addition to its structural and life cycle characteristics. It is also likely that society will place more emphasis on the architectural quality of real estate developments. This trend could be supported by government policies and guidelines. The challenge, however, will be to measure these factors effectively.”