ESG factors have an increasingly significant impact on real estate values, experts agreed at Real Asset Media’s ESG, Resilience and Driving Sustainable Returns Investment Briefing, which took place online recently.
‘The drive towards sustainable investing has shifted in response to coronavirus,’ said Christiane Conrads, Head of German Real Estate Desk, PwC Legal. ‘ESG has gone up companies’ agenda recently, becoming the second issue ranked in terms of importance after liquidity’.
The reason is that companies are under increasing scrutiny for any decisions they take that have an impact on employees, customers and society.
‘Having a clear and comprehensive ESG strategy is very important and beneficial,’ Conrads said. ‘We recommend a multi-disciplinary, comprehensive approach, not just a technical one, trying to anticipate where the market is going and going beyond the bare minimum standard’.
It is a complex and ongoing process, she said, so it’s important to start putting it in place because there will be big changes and tighter regulations ahead and higher standards will be imposed.
‘Whether we like it or not, there are external drivers and there will be more regulations,’ said Douglas Edwards, Managing Director, Head of Equity Raising & Client Services, CORESTATE Capital Group. ‘Taxonomy will be crucial and new rules like MIFID2 will force investors to make choices. Now there is still a mismatch between regulators and practice, but soon greenwashing will be history’.
Some countries are leading the way. Laws in place in the Netherlands from 2023 and the UK at a later stage rule that spaces that don’t comply with energy consumption rules cannot be leased out.
‘These new rules will inevitably have an impact on valuations and these value triggers will only increase in the future,’ said Thomas Veith, Partner, Real Estate, PwC. ‘In Germany regulations are strong and there is a clear commitment from the Government to continue with green investments’.
Products that don’t conform cannot be sold to retail clients, he said, and that clear message is really focusing minds. ‘Empty gestures and greenwashing will not cut it anymore. Pragmatic, realistic solutions must be found, because ESG is here to stay’.
The response to a snap poll done among delegates was overwhelming: 83% of respondents said they believed there would be a higher focus on ESG and sustainability issues post crisis, while 13% thought it would stay the same and only 4% felt these issues would become less important.