Demystifying ESG – starting your journey to net zero

Image: Adobe Stock/Stefan_E

How do you get started on ESG? Three sustainability experts who spoke at a seminar organised by Drooms offer their advice.

Everyone knows ESG issues must be tackled, but the details of what should be done and what the rules and regulations are remain a mystery to many. Drooms, the leading virtual data-room solution in Europe, organised a seminar titled Demystifying ESG: Navigating your way to net zero, asking the opinion of three experts in the real estate sector. 

Aim for the stars, reach for the treetops

“The ESG acronym is scaring the market,” said Rosanna Lawn, a real estate, sustainability and ESG consultant. “I tell clients that they can’t do it all at once because it’s impossible. You have to allow your strategy to evolve. Break it down into its main components and tackle one at a time. First, focus on the principles, add a layer of strategy and then a layer of implementation.”

Companies should not be afraid of stopping and starting, of testing things to see what works and what doesn’t. Even of making mistakes, because implementing the strategy is inevitably harder than devising it. “Just put one foot in front of the other,” said Lawn.

It is important to be aware of the number and complexity of the issues involved. But without being overwhelmed by the idea of navigating such a complex landscape. It is also important to be realistic about what can be achieved in a limited time frame.

‘Many companies are already measuring a lot of the ESG data they need, they just aren’t aware of this.’

Rosanna Lawn, real estate, sustainability and ESG consultant

“You should aim for the stars but reach for the treetops,” said Petter Made, senior vice-president for product and development at Drooms. “Regulations are constantly changing and we cannot do everything at once. What we should achieve is incremental improvements to performance.”

ESG risks and how to avoid them

ESG risks are a growing concern for investors. These risks can have significant implications for real estate projects and must be identified at the beginning of ESG journey. Clémence Le Van, head of ETYO Green Insight at sustainable consultant ETYO, shared three key strategies to avoid ESG risks in real estate investments:

1. Before investing in a real estate project, conduct ESG due diligence, including evaluating the environmental performance of buildings, assessing the project’s social impact on local communities, and examining the company’s governance practices. By conducting ESG due diligence, investors can identify and mitigate potential risks associated with the project.

2. Investors should engage with real estate companies to encourage them to adopt more sustainable and responsible practices. This can include advocating for energy-efficient design and construction, promoting affordable housing, and encouraging companies to implement ESG policies and practices.

3. Investors should also consider investing in ESG-focused real estate funds with a strong sustainability and social responsibility track record. These funds prioritise ESG factors in their investment decisions and often have an ISR label (which is managed by the French Ministry of Economy and Finance and sets a standard for financial products in France and Europe), indicating that they meet specific ESG criteria.

“It’s important to have a team of experts to help you in your ESG strategy, including legal, sustainability and finance professionals,” said Le Van. “This ensures ESG goals are integrated into business practices.”

The Key benefits for businesses

ESG initiatives are becoming increasingly important for businesses looking to operate sustainably and responsibly. Implementing ESG initiatives will bring companies a range of immediate and
long-term benefits.

Elena Corredor, sustainability business development manager at Arcadis, highlighted several key benefits accruing from the adoption of sustainable and responsible practices. These include improved brand reputation, the ability to attract new business, regulatory compliance and the increased profitability of assets.

‘It’s important to have a team of experts to help you in your ESG strategy, including legal, sustainability and finance professionals. This ensures ESG goals are integrated into business practices.’

Clémence Le Van, head of ETYO Green Insight, ETYO

Corredor added that the first step is to ensure sustainability compliance is being carried out. Arcadis’s clients usually go a step further and implement voluntary strategies that align with their ESG strategies and provide added value and differentiation in the market, she said.

“The sustainability area is turbulent, but it’s expected to become  more and more strict, so it’s crucial to start implementing ESG as soon as possible,” Corredor said. “It’s important to start by understanding which regulations are applicable to your business in order to mitigate transition risks.”

Measuring ESG impact

Another important topic under discussion is the way the impact of ESG is measured. This is a complex process requiring a tailored approach, depending on the investor’s ESG policies, priorities and local regulatory context.

At Arcadis, the first step in measuring ESG impact is to ensure its clients have a solid strategy in place. If the client doesn’t have one, Arcadis helps define it.

Once the foundations are set, customised ESG tools are developed to measure and monitor ESG indicators. The tools always include opportunities for improvement and investment estimates to improve the sustainability of the assets.

Similarly, ETYO creates bespoke ESG rating tools for clients designed to reflect their policies and the local regulatory context. These tools help clients understand their ESG performance clearly and transparently.

‘The sustainability area is turbulent, but it’s expected to become more and more strict, so it’s crucial to start implementing ESG as soon as possible. It’s important to start by understanding which regulations are applicable to your business.’

Elena Corredor, Arcadis

Both companies understand that measuring the impact of ESG is crucial for building trust and confidence among investors. By providing a clear and transparent view of ESG performance, investors can see the value of sustainability investments and be more confident in their decision-making.

“Many companies are already measuring a lot of the ESG data they need, but they just are not aware of this,” said Lawn. However, having the data is not enough. Measuring is not the same as implementing and it’s a necessary, but not sufficient, step to compliance: a lot more must be done.

The biggest misconception about ESG, according to Lawn, is “that it will disappear if you fly below the radar. Now it’s the investment market driving the ESG push, so it will not go away. In future there will be more scrutiny, not less.”