Challenge as ESG bar is set ever higher

The regulatory environment keeps changing and the real estate industry needs greater clarity. Nicol Dynes reports.

The ESG bar is being set ever higher, but real estate companies are facing up to the challenge, experts have told Impact.

“We need to come up with new products all the time and our Impact Fund was a first. It only invests in renewable infrastructure and has a positive impact on CO2 reduction, in line with Article 9 of EU taxonomy,” says Jens Böhnlein, global head of asset management at Commerz Real.

“We’re trying to convert the entire company into an ESG-driven community, but the real estate aspect is a bit more complex.”

The regulatory environment keeps changing and greater clarity is needed, but it is already evident that it will be more rigorous and demanding. “The pandemic and other challenges have brought an acceleration,” says Sebastian Kreutel, a director at PwC Germany. “Now there is no more place for Article 6; Article 8 products will become the norm.

“Hopefully, soon there will be more clarity on what you need to do to be eligible for an Article 8 fund from a legal and regulatory point of view.”

‘There are not enough chargers for electric vehicles, so we invite city inhabitants to charge their cars overnight in our garages.’

Werner Paul Boerma, ParkBee

Industry participants have a better understanding of what needs to be done, but the details are still sketchy.

“I agree that Article 8 is the new normal now, but it’s still very much a work in progress on multiple fronts, including impact,” says Böhnlein. “The social taxonomy draft has just been released. It will be interesting if it leads to new products being developed.”

Shiny new buildings fit easily into Article 8 requirements. The real problem is non-ESG compliant existing stock with all its embedded carbon.

“Refurbishment is where you can have a real impact,” says Kreutel. “In Germany we need to double the rate, at least, in order to reach the goals we have set ourselves. More incentives are needed for the industry to speed up the process.”

Real estate companies must examine their portfolios in detail and work out what needs to be done. It’s a time-consuming process, but an essential one.

“Selling off non-compliant buildings is not a solution,” says Böhnlein. “We try to get a good understanding of all 160 assets in our portfolio. “When it’s possible to convert an asset, then we do, but we have to accept that we can’t deliver everything at once and there’s a lot of complexity involved.”

It is impossible to overestimate the gravity of the situation and the need to act urgently, says Böhnlein. “As an industry, we need to find solutions or there won’t be a planet to live on. The message has to be stark to get through to people.”

Technological solutions

Technology and ingenuity are providing much-needed solutions to the climate problem and making ESG goals more reachable.

“I see a lot of great companies popping up with new ways of construction, using prefabs and technology,” says Böhnlein. “Technology will help reduce our carbon footprint. It seems difficult now, but in 10 years’ time we will look back and be amazed at all the innovations.”

New building materials and construction methods are a big part of the slow-but-steady move towards reducing CO2 emissions.

‘We started using green concrete, which has much lower emissions. Now we use it in all our projects.’

Arkadiusz Rudzki, Skanska

“We wanted to be innovative, so started using green concrete, which has much lower emissions, on Generation Park in Warsaw city centre. Now we use it in all our projects,” says Arkadiusz Rudzki, executive vice-president of leasing and sales at Skanska office development in CEE. “In Prague, we are using timber construction, which is net zero. We take inspiration from the Nordics, which are ahead on this.”

Different challenges

Existing buildings pose different challenges but can be improved by adding digitalisation, using green energy as part of the solution. “We improve building to buy time for the next five or 10 years,” says Böhnlein. “In Germany, the net zero goal has been brought forward from 2045 to 2035, so there is a new sense of urgency.”

It is a combination of interventions added together that will make a difference. Sometimes solutions that work do not have to be high tech, but simply innovative.

“We know there are not enough chargers for electric vehicles, so we target city inhabitants and invite them to charge their cars overnight in our garages. This is having a big impact,” says Werner Paul Boerma, chief executive of ParkBee.

‘As an industry, we need to find solutions or there won’t be a planet to live on. The message has to be stark to get through to people.’

Jens Böhnlein, Commerz Real

“Our app also avoids the need to drive around looking for a place to park, saving time and reducing pollution and congestion.”

Sometimes the challenge is the time it takes to change companies’ attitudes and priorities, as well as people’s habits. “Like all disruptors, we have to keep pushing the message and persuade people that we give them an opportunity to change their behaviour,” said Boerma. “Once they have been converted, they adapt quite happily and it quickly becomes the new norm. Now we are scaling up and looking to expand throughout Europe.”