Outlook 2024: ESG compliance a bonus for investors in CEE
ESG compliance is one of the reasons to invest in Central and Eastern Europe, delegates heard at Real Asset Media’s European Outlook 2024: Focus on CEE, which took place last week in Warsaw.
“Everyone is aware that the cost of doing nothing is becoming higher,” said Marcin Juszczyk, board member and partner, Capital Park, and chairman of ULI Poland. “When we developed our first ‘green’ office building in Warsaw we were told that no one would pay for that, but the buyer was then able to issue green bonds on the back of that acquisition. Things have really changed in the last few years.”
The change is reflected in the growing importance of certifications that guarantee a building’s energy efficiency and assess and rate its sustainability credentials. A BREEAM rating of ‘good’ is no longer considered good enough.
“Certifications have become a must-have in CEE,” said Piotr Mirowski, senior partner, head of investment services, Colliers. “Many asset owners are upgrading their buildings to move up from BREEAM Excellent to Outstanding.”
Whether it is putting solar panels on the roof, using sustainable building materials, or collecting and separating all waste from building sites, as a new Polish law now requires, ESG compliance has become the norm in CEE.
“Most of our clients understand clearly what needs to be done, they see the bigger picture,” said Joost Leendertse, founder & CEO, VerusSol. “It’s about good governance but also about valuations: the brown discount is already very noticeable.”
Banks are busy assessing new properties’ credentials and are also aware of the challenges with older buildings that are not ESG-compliant and need to be upgraded, although as stock tends to be more modern in CEE this is less of a problem than in Western European countries.
“We issued our first green bond back in 2015 and the first challenge for us was developing tools and defining the criteria to assess the properties we are financing,” said Justyna Kedzierska-Klukowska, head of Warsaw office, Berlin Hyp. “Energy consumption data are the easiest to measure, but EU rules require very detailed questionnaires and in-depth analysis. We are constantly developing and improving our methodology.”
In this period of transition, while everyone waits for liquidity to return and investment activity to pick up, there are interesting ESG-related trends going on in the market.
“The owners of some empty offices are offering their space to the local community, for kids and young people to use in the evenings or at weekends,” said Agnieszka Sznyk, president of the board, INNOWO. “This way the space is used more efficiently and a social network is being built. The social component of ESG is becoming increasingly more important.”
In the same vein, old factories, warehouses or empty buildings that are waiting for permits to be granted to repurpose and upgrade them – which can take a long time to be granted – are being rented out cheaply or even given for free to the community.
“They can be turned into skateparks, co-working spaces, community halls,” Sznyk said. “This brings life back into buildings which would otherwise be abandoned, and it also increases their value. In the region ESG compliance is now the norm.”
