EU leads the way on ESG, but global level playing field a must

Europe is leading the way on ESG but what is needed is a global level playing field with everyone following the same rules, experts agreed at Real Asset Media’s Transforming Real Estate briefing, which was held recently at PwC’s London headquarters.

“The EU is seen as the gold standard, it’s the only one regulating at this level,” said Natalie Breen, global head of strategic growth and business development, Sanne Group.

“But will the US and APAC countries follow? From a fund manager’s perspective, it would make sense for global investors reporting to the same LPs.”

Active discussions are going on in companies. The hope is that the benchmark will be raised everywhere and best practice will win, but it is by no means certain.

“The EU is creating a giant comprehensive framework and setting the standard for others to follow,” said Christiane Conrads, EMEA real estate ESG Leader, PwC. “EU investors and institutions are leading the game. Work is ongoing and it will have a definite impact on regulations everywhere. But we are still at the very beginning of a long journey.”

In the EU over one third of funds are classified as ESG, while in the US it’s less than 20% of the total.

The importance of EU taxonomy cannot be over-estimated, said Breen: “It’s placing everyone on a level playing field, enabling people to judge like for like and putting an end to greenwashing. Everyone, from the end-user to the LPs, can have the same direction of travel.”

There are some positive moves such as the Net Zero Owner Alliance, a commitment made by 71 of the biggest real estate managers to take ESG into account when they make an investment decision.

“Big players are ok, but it’s very costly for smaller funds, because you need expertise and dedicated people,” said Breen. “Big companies have built their own in-house ESG team, but below the big global institutional players there’s a large group of companies that need support. It’s an investment that will pay off in time, but it’s an upfront cost.”

The transition to ESG is driven by investors as well as tenants, who are becoming more aware of their own role and the difference they can make. 

“Real estate companies are experiencing demand from tenants and other stakeholders as well as regulatory pressure,” said Conrads. “Many realise that they are not prepared, and it takes time to build a team with the right expertise to deal with increasingly complex regulations, which are not yet harmonised”.