Growing focus on sustainability a ‘big advantage’ for CEE

A recent surge in large-scale development means the region can boast that 90% of its commercial buildings are ESG compliant. Nicol Dynes reports.

Central and Eastern Europe has an edge when it comes to sustainability. “I believe our commercial real estate has a big advantage and leverage compared to Western Europe, because 90% of our buildings are ESG-compliant,” says Adrian Karczewicz, head of divestments CEE at Skanska Commercial Development Europe.

Poland and other countries in the region have seen large-scale development in the last few years, which means that most buildings are new and built with modern construction techniques. Western European countries, on the other hand, face an uphill battle with obsolete buildings and stranded assets.

The quality of a building is key, but what happens inside it is equally important, because ESG compliance is not static, but rather an everyday commitment.

Occupiers have big role

“Embedded carbon clearly has a big impact, but the biggest focus should be on how a building is used, and in this occupiers have a big role to play,” says Karczewicz.

Tenants and landlords should work together on a continuous journey, being aware of what needs to be done and using all the features that are available in the best possible way.

“In Poland and throughout CEE, occupiers are aware of ESG issues but implementation is the problem,” says Monika Rajska-Wolinska, chief executive officer, CEE, at Colliers. “They need support with transition management and new workplace solutions.”

‘We need to be provided with reliable data so we know what needs to be done and we can tell investors how much it will cost.’

Georg Schattney, Corestate Capital Group

The first step is awareness of the problem and willingness to deal with it. On this front much progress has been made, thanks to the prominence that ESG themes have had in public discourse and in the media.

The second step is working out a strategy and the third is implementing the strategy. These two subsequent steps need a wealth of data to base decisions on, collaboration to turn decisions into actions, and technology to make those actions work.

“We need to be provided with reliable data so we know what needs to be done and we can tell investors how much it will cost,” says Georg Schattney, group head of ESG/sustainability officer at Corestate Capital Group. “At the moment, a €20,000 car produces more data than a €20 million real estate asset. That has to change.”

Technology is coming to the rescue and providing solutions. “Digital technology and the new business models that come with it can address ESG issues,” says Elisa Rönkä, global head of SaaS sales for digital buildings at Siemens Smart Infrastructure. “In a recent survey, 47% of executives said ESG is the main driver for their investment in cloud solutions, which is a clear sign of what a focus sustainability now is.”

Sustainability has been in the spotlight in the past year, but things have only just got started for the real estate sector.

“We are just at the beginning of a long journey,” says Rönkä. “All the players along the lifecycle of a building must come together at the beginning and follow it through to the end.”

‘Green certificates started years ago but now there’s a specific time frame if you want to stay relevant in the market.’

Monika Rajska-Wolinska, Colliers

Buildings are not isolated entities but must be seen in their context, so connecting them is important, she adds. “It’s challenging to have separate initiatives and solutions. It is better to bring them together in a platform perspective, connect the buildings and the transport infrastructure and then you can implement solutions. That’s when the magic happens.”

Legislative changes

A broader and wider perspective is needed and that is being encouraged by legislative changes, says Michael Nauta, senior associate at CMS.

“On the EU regulatory side the focus has been on carbon neutrality and avoiding stranded assets, but keep in mind that there is a lot more to do and many technical aspects that need to be taken into account if a building is to be future-proof,” he says. “Carbon neutrality is no longer the be-all and end-all.”

The requirements are getting tougher. EU taxonomy regulations and two acts on climate change mitigation and adaptation have just been adopted and came into force on 1 January.

“Green certificates started years ago but now there’s a specific time frame if you want to stay relevant in the market,” says Rajska-Wolinska.

‘In a recent survey, 47% of executives said ESG is the main driver for their investment in cloud solutions – a clear sign of what a focus sustainability now is.’

Elisa Rönkä, Siemens Smart Infrastructure

It means looking at every asset in the portfolio and assessing what needs to be done. “Meeting the goals is a massive challenge because of the granularity of the requirements,” says Schattney. “In every portfolio there are buildings that are older than 10 years, which means they are not compliant.”

The traffic light system divides assets into green, which are ESG-compliant; amber, buildings which can be improved and brought up to the required standard; and red, which means buildings must be demolished or totally repositioned.

“The problem is you need a lot of knowledge to make that assessment and then carry out the required strategy,” says Skanska’s Karczewicz.

Banks and insurance companies are also looking at this closely as well as the EU, governments and local authorities. Yet despite the increased emphasis on sustainability, it has yet to be fully taken on board by the market.

“When we do due diligence, questions about ESG are very important, but it doesn’t have a direct impact on price yet,” says Nauta. “Technical questions sometimes don’t get answered. The market still allows a lack of information on these topics at the moment, but I am sure that will change in a matter of months.”

Healthy food and exercise on menu in social impact drive

One side-effect of the health crisis is that it has helped push ESG issues to the fore.

“The pandemic has made the transition easier, because it has opened minds to new ways of working and thinking about the impact we are having on the planet and on society,” says Colliers’ Monika Rajska-Wolinska.

The importance of the social impact part of ESG is increasingly being recognised, to the point that the European Union is trying to set up definitions and regulations.

“Social taxonomy is not finalised, but the attempt to focus on social activity and its impact is interesting,” says CMS’s Michael Nauta. “But it is a challenge to define what constitutes a positive impact on jobs and on society. Environmental criteria are based on science, but social issues are not so clear-cut.”

Regulation might be far off, but the growing importance of social impact is already leading to real practical changes in the real estate sector.

“The S in ESG is all about the well-being of people, so the focus has shifted to the people in the building rather than the building itself,” explains Skanska’s Adrian Karczewicz. “It has moved beyond certificates.”

Attention must focus on the quality of the light and of the air in a building, on services and amenities provided and on people’s safety and comfort.

Exercise and vegan food

“Social impact is coming up as a subject and leading to big changes in the market,” he said. “If you want to attract talent to your company you need to provide better office solutions and look beyond the building to employees’ health and well-being and also entertainment.”

‘If you want to attract talent to your company you need to look beyond the building to employees’ health and well-being.’

Adrian Karczewicz, Skanska Commercial Development Europe

Skanska only serves organic, healthy and nutritious food in its office canteen, for example, offers spaces for relaxation and games and provides personal trainers for exercise.

Colliers Poland will only provide vegan food to its employees, says Rajska-Wolinska, because “we need to look beyond the buildings to our impact on the food chain and the planet and reduce emissions as much as we can”.

The picture has become a lot more complex, said Karczewicz: “There are so many more things to be taken into account now.”