Legislation will determine compliance and stop companies from claiming green credentials they do not deserve, experts agreed at Real Asset Media’s ESG – Effective Strategies for Real Estate briefing, organised in partnership with PwC.
“EU taxonomy that became effective last summer, is a regulatory framework that puts an end to greenwashing,” said Christiane Conrads, EMEA real estate ESG leader, PwC Legal. “It’s part of a long and ongoing regulatory process, a complex system to promote environmental targets.”
A lot more work will now need to be done to specify the criteria, she told the briefing’s third session on Legal & Regulation – How regulatory changes are driving ESG investment strategies.
It is important to have clarity on what ESG means and on the metrics used so that it is possible to look beyond the claims made and differentiate between funds.
“The biggest deterrent for investors is that rules are not clear or homogenous,” said Karlien De Bruin, global head of ESG, Sanne Group. “That’s why it’s so important to have regulations to unify and clarify the metrics used and to have everyone work on the same basis. If you make a claim to be ESG-compliant, you do it based on the taxonomy.”
Legislation is to be followed up with metrics that are yet to be disclosed and with the need to report on compliance to the rules, so that the market will be forced to move in the right direction and to improve over time.
“In time, there’ll be a constant improvement in returns as well,” De Bruin said. In order to push the ESG agenda, it is important to have an investment strategy in place as well as the data to report on.
Investors are best ambassadors for ESG strategies
“ESG has become part of the business environment and international investors are the best ambassadors of ESG strategies,” said Olga Balytska, head of real estate, PwC Legal Ukraine. “But regulations should be as clear as possibile, so that they can be easily adopted.”
The new taxonomy is a new regulatory tool, while certification schemes are a market tool that have been around a long time and are useful in measuring sustainability, especially in new buildings.
“Now certification schemes are adapting to be in line with new regulations and this will be a very helpful move forward,” said Conrads.
In order to have clarity and certainty, it will also be helpful to harmonise EU taxonomy with all the various regulations at national and local level on energy efficiency, promoting alternative energy sources and so on, she said.
“Rules change all the time, it’s a fast-moving picture,” said Conrads. “New regulations come out, changing the way we do real estate due diligence, for example. Clients don’t want to face capex requirements to bring the building into line after they have signed the deal.”