ESG is becoming embedded in real estate investors’ thinking and efforts to steer property toward net zero carbon are intensifying, but the real challenge is in transforming existing stock, experts agreed at Real Asset Media’s ESG & Driving Sustainable Returns session which took place on the REALX.Global platform last week.
The resolve of the property industry to take on the sustainability challenge has been demonstrated over the last year. While It might have been expected that ESG would be de-prioritised in the event of a global emergency, as was the case after the global financial crisis, this has not been the case during the covid pandemic.
“I was surprised to see during the pandemic that the ESG issue was at the centre of client preoccupations. Previously in economically difficult times ESG was a luxury theme. Now it is well embedded in the business of real estate,” said Assem El Alami, head of international real estate finance, Berlin Hyp.
He said that, to begin with, green building had to be incentivised. Now it is standard procedure “and all new buildings are basically green”. The next phase will be “transforming what is now grey into green”.
80% of 2050’s building stock already exists
Sasha Njagulj, CBRE Global Investors’ global head of ESG, said that while in managing a core portfolio the objective is basically to hold and manage an already green asset, for value-add portfolios it is either an up-front development or a case of dealing with existing buildings. “And 80% of buildings that will be around in 2050 are already here, especially in Europe, with their historic value, cultural value and embodied carbon. We do need to turn these buildings around,” she added.
“Building ourselves out of the climate crisis is not really an option, we need to deal with the existing stock.”
James Fisher, senior relationship manager, real estate at BRE Group said that, in his experience of BREEAM, the European market has been stronger last few years with Sweden and France in particular, much more active on existing asset improvement. But he warned that it is important to avoid having a proliferation of different approaches. “Having a consistent set of standards that are applied across the board is absolutely paramount.”
European institutions and national governments are waking up to the urgency with which the challenge needs to be tackled, according to Clemens Brenninkmeijer, head of sustainable business operations, Redevco. He said that it is also good that industry leaders are voluntarily raising the bar but he added that there is now increased urgency.
“We are into the decade that will determine the future of our planet and so we have to start taking some bold action and from that perspective it is fantastic to see that the regulators are upping their game,” Brenninkmeijer added.
“We don’t have to be perfect tomorrow. It is about setting a baseline today.”
Click below to see full panel discussion: