ESG: a ‘tsunami of regulations’ will hit the real estate sector

The property sector must prepare itself for an avalanche of ESG-related regulations and requirements, experts agreed at Real Asset Media’s European Real Estate in Transformation – ESG, Digitisation, Proptech & Investment briefing, which took place recently at Schroders’ offices in London.

“We try to stay ahead of legislation by being proactive and improving our assets, but it’s becoming almost impossible to stay one step ahead,” said Clemens Brenninkmeijer, head of sustainable business operations, Redevco. “In the last two to three years there has been a huge amount of legislation in Europe and translating it into local regulations within the deadlines is proving to be a challenge.”

(L to R) Jules Barker, Clemens Brenninkmeijer, Christiane Conrads, Oliver Kummerfeldt. Photography@ Karla Gowlett

Companies are trying their best to implement the changes, balancing the investments that need to be made with the imperative of delivering financial returns, but it is becoming increasingly complex.

“There’s an element of frustration about all these new regulations coming out, which can be overwhelming,” said Oliver Kummerfeldt, head of European real estate research, Schroders Capital.

The principles behind the legislation are simple: aiming for higher environmental and social standards, doing life-cycle analysis of assets, applying a consistent methodology. But implementation is more complex.

“The problem is that all these requirements are not harmonised,” said Christiane Conrads, partner, global real estate ESG leader, PwC. “Regulatory bodies are competing with each other for higher standards. Regulatory pressure is already huge and it’s only going to increase. There is a lot more to come: I expect a tsunami of requirements hitting us in the next few years.”

The flip side of the coin is that the EU is a trailblazer in this field, while in the US, for example, discussions are just starting and there is a steep learning curve ahead. In Europe, all investors with a long-term horizon know they need to have a sustainable portfolio and can work out their own path to achieving that goal.

“People do understand they need to make those investments or their assets will be stranded, and they know it will take time and resources,” said Kummerfeldt. “People want to do the right thing and they also want to be seen to be doing the right thing.”

The investment needed to have sustainable assets is substantial and the work is difficult as ESG has so many different facets. Asset managers need a team of people with different skills to implement ESG strategies – from law to climate, from engineering to technology and from energy to AI.