MIPIM: the market now driving progress on ESG compliance

Regulations have forced compliance with ESG rules but companies are now taking over in pushing sustainability forward, experts agreed at The Role of ESG in the Global Market Reset briefing, organised by Colliers and Real Asset Media, which took place at MIPIM yesterday. 

“The regulatory framework set the context and got things moving, but now it’s the market driving progress,” said Andy Hay, managing director, property management and ESG, Colliers. “We’re seeing this already and we will see a lot more of that in the future.”

Non-financial metrics are playing a bigger role and companies have a carbon budget alongside a financial one. They are not on a par yet, said Hay, but the direction of travel is clear. There are instances of bonuses not being paid if ESG targets are not met and banks are putting non-financial metrics in their covenants for loan agreements.

“We are seeing a definite change in mindset, finally,” said Christiane Conrads, global real estate ESG leader, PwC. “Alongside regulation, risk assessment has become a big driver as well as stakeholder demand, as more international corporates and tenants develop their own ESG strategies.”

The market will see big changes as companies adapt to the new requirements. Colliers’ recent Global Investor Outlook survey found that 45% of investors are planning to dispose of up to 20% of their assets over the next five years as they shift to higher quality assets.

“There’s clearly an upside to making buildings energy efficient, but there’s also a huge amount of uncertainty at the moment,” said Damian Harrington, director, head of EMEA research, Colliers. “There’s uncertainty over valuations, over the cost of making buildings ESG-compliant and over financing, so investors have to take a bit of a punt not knowing what their returns will be.”

Europe is in a transition phase towards green buildings being the norm, but there’s a long way to go: in EU countries only 0.24% of buildings have been retrofitted. The technology is there and is constantly improving, but costs are a big obstacle. 

“Many companies have net zero carbon by 2030 goals but are working out the costs,” said Peter Stocks, partner building services, Cundall. “They are dipping their toe in the water and trying to make cost-effective changes and find the right balance. It’s an expensive, time-consuming strategy but it is a must, or you won’t be able to let the building.”