Italian real estate’s €2 trillion challenge to be ESG-compliant

Italy has a €2 trillion mountain to climb to make its buildings sustainable by 2050, but it’s a challenge private investors and the real estate sector should embrace, delegates heard at Coima’s recent Real Estate Forum XII.

“We have an opportunity to be a frontrunner,” said Manfredi Catella, founder & CEO, Coima. “We’ll never complete the energy transition unless we organise ourselves to fund it with domestic resources.”

The Italian government has approved an integrated national plan for energy transition, which involves phasing out fossil fuels, using heat pumps and renewable energy, insulating walls and roofs and replacing windows as well as implementing better building management and behavioural change.

There are 5.3 billion sq m of real estate that need upgrading, 79% of which is residential. The estimate of the total cost to reach zero carbon in Italy by 2050 is €2 trillion.

“If you leave out residential and just focus on public buildings and residential, the cost is €270 billion,” said Catella. “You can adjust the numbers, but this is the order of magnitude. So where will the money come from?”

All parties agree the transition is necessary, but there is no clear consensus on who should bear the burden.

“The Italian economic system is founded on small and medium enterprises,” said Catella. “So it’s crucial to have all construction companies, asset managers and the supply chain working together to execute the strategy, which is what’s happening in France, Germany and Spain.”

If that does not happen, the battle can never be won.

Italian institutions, that currently invest only 10% of their €1 trillion capital in real estate against a global average of 15%, could contribute €50 billion “today”, Coima calculates.

Private capital, that has uninvested private savings of €1.7 trillion languishing in 0% interest bank accounts, could potentially invest €85 billion in real estate.

Bank lending, public funding and international capital could provide the rest.

In order to move forward, Italy has to find inspiration in history and go back to the future.

“The cities of the past were designed around public spaces, squares, churches, marketplaces,” said Catella. “We’ve moved away from that, living in silos, maximising profit, no longer human-centric. We must look back to the past to find a truly sustainable future.”

Italy has a large network of medium-sized cities that are a good alternative to a large metropolis and can provide more affordable housing as well as a better quality of life. Good transport connections, such as the high-speed trains, make living in one city and working in another possible.

“Investments in infrastructure and connectivity are more important than investments in buildings,” said Catella. “For example, instead of building more houses in Milan, build infrastructure to connect Milan with the many cities within commuting distance that have cheaper homes, like Genoa, Brescia, Bologna or Varese.”