Huge demand for ESG-compliant assets in France

ESG compliance has become a must in the French market, experts agreed at Real Asset Media’s France Investment Briefing, which took place online recently.

Sabine Leuschner, partner, Sagasser S.e.l.a.s.

“There is huge market demand for ESG-compliant investments,” said Sabine Leuschner, partner in law firm Sagasser. “It’s a legal framework at the moment, but it’s also a marketing issue. We see multinational tenants restructuring interiors completely because they want to present a certain image to their clients and investors.”

In central, Paris period assets present an additional challenge, as it is complex and costly to make them ESG-compliant without stripping them out completely. “The Haussmannian buildings are very difficult to adjust,” said Leuschner.

But there is no alternative as ESG compliance can now determine whether a sale or a lease contract goes ahead or not.

“Basically it’s a go or no-go for international investors,” said Guillaume Unglik, managing director France, L’Etoile Properties. “Buyers are really interested in the details of ESG compliance. We need to explain step by step how the labels have been obtained and which features of the buildings have been improved.”

For investors and real estate companies working across Europe it can be difficult to get to grips with different standards, regulations and market expectations on ESG.

“ESG has become key and some investments committees are putting it as their number one requirement,” said Didier Unglik, president, L’Etoile Properties.“The problem is that rules are different in different countries. For example, we’re big believers in nuclear energy so in France it’s ESG-compliant, but in Germany it’s not.”

The lack of  harmonisation can lead to tricky situations.

“Each country has its set of labels,” said Benjamin Cartier-Bresson, head of Paris office, Berlin Hyp. “A perfect French asset may not qualify for a loan from us because we follow German criteria. And that’s just on the environmental side: if you add the social and governance issues, it becomes even more complicated.”

Whatever the difficulties, the direction of travel is clear. ESG compliance is now a must-have and the way to start might be with the environmental requirements which are easier to understand and comply with.

“The sustainable aspect is part of the due diligence that you have to do,” said Guillaume Turcas, managing partner, Faro Capital Partners. “Labels may differ, but the model works because energy efficiency can be measured.”