Tenants and peer pressure to force positive change on ESG

A combination of peer pressure and tenant demands will force positive change, delegates heard at Real Asset Media’s ESG-Breaking new ground. Maximising Development & Re-development Opportunities briefing, which was held recently at PwC’s offices in Frankfurt.

Stephen Oakden, Co-founder, BE Design.

“We’re already seeing people move out of old assets into new assets because new company policy dictates that they must be in a grade-A building with a good EPC rating,” said Stephen Oakden, Co-founder, BE Design.

As the old assets become stranded there will be increasing demand for ESG-compliant buildings, not just in the office sector but across asset classes.

At present it is difficult to put a price tag on ESG-compliance, but it will increasingly be seen as the right thing to do.

“Reputation is a word we should throw in the mix, because it will matter more and more,” said Anna Tsartsari, co-founder, head of ESG and sustainability, BE Design. “Being sustainable will pay dividends and peer pressure will deliver positive changes.”

Another crucial development will come from funds changing their rules about what is a fundable asset.

“We’ll see better guidance from the funds because they are becoming better educated,” said Oakden. “They are rapidly specifying their sustainability requirements and, with new regulations coming in, standards will improve.”

The direction of travel is clear, so at this stage investors and asset managers must take a pro-active stance and act without waiting for legislation to catch up.

“Regulation is not there yet, the market doesn’t quite know what the impact will be and pricing is unclear,” said Christian Scheuerl, managing director, Newworld Investment Management. “In the next few years we’ll have a clearer picture of the investment landscape for refurbished assets.”

The risk/reward equation is challenging, but the pressure is there, driven by a mix of legislation aimed at protecting the environment and a market fear of stranded assets and reputational damage.

A new CBRE survey shows the environmental building features that are already having a positive impact on investment decisions and real estate transactions.

Good energy performance is what people are most prepared to pay extra for. Features that reduce energy consumption are top of the list, followed by green building certifications and on-site renewable energy generation.

Resilience to the effects of climate change, such as floods, is also high on the list. “Climate resilience is now near the top of people’s concerns,” said Oakden. “The way forward is a fabric-first policy, creating places that are cooler in summer and warmer in winter.”

The use of sustainably sourced building materials, such as timber, or the choice of a refurbished building over a brand new one are much lower down the list at present, according to the CBRE survey.