An increasing corporate focus on being responsible tenants is changing companies’ location criteria and building requirements, as well as the role of investment promotion agencies.

As companies increasingly recognise their responsibility toward sustainable development, factors related to environmental, social and governance are no longer just add-ons but integral components of strategic planning.

Sustainability considerations are influencing site selection across various dimensions. Environmental impact is a top concern, with companies prioritising locations that offer access to renewable energy, efficient waste management and lower carbon footprints.

Proximity to resources like water and raw materials is becoming increasingly important, as businesses aim to reduce their ecological impact. Social factors, such as community engagement, workforce diversity and access to healthcare and education, are also being taken into account.

On the governance side, businesses are looking for locations with robust legal frameworks, transparent regulatory environments and strong institutional support for ESG initiatives. This ensures not only compliance with international standards, but also the ability to operate in a stable, predictable environment that supports long-term sustainability goals.

Gathering ESG-related data

Investment promotion agencies (IPAs) are key facilitators in this process, helping companies identify and evaluate potential sites through an ESG lens. By promoting regions that align with sustainable business practices, IPAs can attract investments that contribute positively to economies and societies. They can play a crucial role in gathering and providing detailed ESG-related data about potential sites, such as information on local environmental regulations, availability of green infrastructure, and community development programmes.

“ESG and sustainability factors are increasingly driving company site selection, with a strong focus on minimising carbon footprints and embracing renewable energy. We witness this shift daily and have made sustainability a central pillar of our strategy to attract foreign direct investment,” says Wojciech Tyborowski, director of Invest in Pomerania.

“It’s very important for an IPA to really embrace ESG in their own practices. It is something my clients do appreciate.”

Elias van Herwaarden, Locationperspectives

“Our region is committed to environmental stewardship, dedicating substantial development funds to energy transformation and climate change prevention. For us, partnering with investors who share our commitment to sustainability is not just desirable – it’s essential for fostering long-term, responsible growth.”

Elias van Herwaarden, principal at advisory firm Locationperspectives, has observed a notable shift in corporate priorities when it comes to site selection, though he cautions that the emphasis on ESG and sustainability is still evolving.

He says: “We have been asking companies for the last eight years whether ESG or SDG targets of the hosting communities played a role in their location decisions. Initially, the answer was ‘no’. But over the last four or five years, they are saying, ‘yes, it’s important’.”

He adds the caveat that such factors are still only of moderate importance. “Companies are aware that ESG and sustainability should be on their agenda because of regulatory or client pressure. But it’s not a critical consideration for my clients in reality, though.”

How large these criteria loom in site selection decisions can depend on the sector or origin of the company.

“There is a clear split where you can see companies in the renewable energy space that are 100 percent after ESG parameters and those criteria are being put into the decision-making model,” says Jens Manke, director for Germany and Central Europe at FDI consultancy OCO Global.

Antti Aumo, executive director of Invest in Finland, says it is also becoming increasingly important for data centres. “Many of the largest data centre companies in the world are American — companies like Microsoft, Google, AWS, etc. And in their domestic market, being sustainable in your operations is becoming more and more important. Customers demand it, and so do investors,” he says.

Corporate sustainability goals

Robbie Epsom, EMEA head of sustainability and senior director at CBRE Investment Management, notes the growing influence of corporate sustainability goals and the ancillary impact on real estate choices.

“There’s a huge desire, particularly in the office sector, from big corporates to set ambitious sustainability goals, in particular net-zero targets. And so a lot of big corporates, and even SMEs, are trying to find office spaces that are energy efficient and meet sustainability requirements,” he says.

This growing demand is creating a supply crunch of suitable office space. “In the short term, there appears to be a supply and demand issue for offices that meet these high expectations. But eventually, that will start to settle down as this becomes business as usual,” Epsom says.

This is not the case for other industries or projects, however.

“We have site selection projects that are more focused on pure financials. For example, the company is relocating from Germany to Eastern Europe, and the major incentive is cost,” Manke says. In those cases, ESG may be less of a priority.

Rene Buck, chief executive of advisory firm BCI Global, says: “If you look to the services industry, which mainly works in offices, they are certainly already pretty much involved on the environment and sustainability side. But in the chemical industry, metal processing, even food processing, they still struggle because there is a lot of capital investment involved in [meeting such criteria]. Industries in which energy intensity or water intensity is important are the ones that have to still make a lot of progress. For companies that heavily rely on China for products and components and sub-assemblies, it’s the same.”

Paul Adams, inward investment lead at Invest Northern Ireland, highlights that while ESG and sustainability are increasingly important, they have not yet emerged as primary factors in corporate expansion decisions that cross his desk.

Reimagined office space

“In terms of enquiries, ESG and sustainability are not something that we’ve seen mentioned specifically or as a strategic driver in terms of footprint expansion,” Adams says. “Post-pandemic, a lot of firms have reimagined their office or location footprints as remote, hybrid and flexible working has become the norm – there is less of a requirement to prioritise the acquisition of property as part of the location strategy.

“When talking to prospects, their focus is on talent and the availability of that, in an era where companies can technically hire employees anywhere.”

Companies talk about setting up “hubs” and “centres of excellence” that are accessible rather than new office locations, he says. This has meant downsizing, or flipping office space for smaller more agile and better-presented premises, meaning larger office blocks becoming redundant or being reconfigured into either shared workspaces or even student accommodation. Remodelling office space and buildings rather than demolition has become a byword in sustainability practice – with LEED and BREEAM certifications coming to the fore.

 “In one way, having fewer people travelling to a communal place of work is beneficial for the environment as it means less vehicles on roads some days of the week,” Adams says. “Some of the questions asked of me are around typical commute time and public transport availability which in my six years in FDI, I don’t recall being asked before. Digital infrastructure is a key driver, and something that can be easily demonstrated.”

“I’m seeing more occupier engagement than ever because we have that data to be able to have a conversation around how we collaborate on this transition.”

Robbie Epsom, CBRE Investment Management

Buck seconds this analysis. “If you take the office environment, you see that companies combine two different forces. They want to reduce their office square metres, because with hybrid working they don’t need as much space. So they go to a more sustainable, somewhat higher-price building.
In the end they have less floorspace, but better and more sustainable real estate for the same price.”

Higher-priority ESG aspects

There are also variations in which aspects of ESG are given higher priority in site selection calculations, or which are easier to fulfil. “What I’m seeing is that with S and G it’s ‘check the box’, and with E people will check the box, but in practice compromises need to be made,” says van Herwaarden.

Adams adds: “Of all the ESG factors, the one that comes up most often in my conversations is diversity and inclusion – mainly because the sectors I look after are in the services sector and thus are people-focused.

“Prospects I’ve spoken to will either have published ESG D&I policies or will talk about their commitments to improving representation to be more reflective of the communities they’re hiring from, or serving. We need to focus on firms that have a good track record in this space.”

In addition, there are frequently difficult trade-offs to be made between the three. “A lot of solar panels — which are used to help meet sustainability goals — use polysilicon, which is mainly mined in the Uyghur region in China, where hundreds of thousands of people are in forced labour camps,” notes Buck. “If you are an investor in logistics, you can have a beautiful warehouse, but do you want to have a tenant who uses products which are partly being made in such a region?

“As a result, I think what you will see is that these ESG regulations go further than just the building itself and these dilemmas will continue to come up in the coming years.”

Key performance indicators

The introduction of key performance indicators (KPIs) in the EU Taxonomy and the underlying KPIs from the Sustainable Finance Disclosure Regulation (SFDR) are beginning to provide much-needed clarity on the sustainability aspect of buildings, according to Epsom.

The EU Taxonomy is a classification system established by the European Union to define what constitutes environmentally sustainable economic activities. The KPIs measure the alignment of economic activities with the EU’s sustainability goals and can be used to assess whether buildings or projects qualify as ‘green’ under the EU’s criteria. For green buildings, this would involve KPIs such as energy efficiency, use of renewable energy, and adherence to environmental standards.

SFDR is an EU regulation introduced in 2021 aimed at increasing transparency in the financial market regarding sustainability risks and impacts.

“The KPIs are giving both investors and occupiers a way to actually judge progress and performance on sustainability in a way that they know the market recognises. It’s been a real change from where we were even a year or so ago,” Epsom says.

He says onsite decarbonisation audits are also bringing better clarity. “Suddenly we have the data and the information we need to be able to have these meaningful conversations both up and down the value chain with both investors and occupiers. This has been the big shift and I’m seeing more occupier engagement than I’ve ever seen because we have that data to be able to have a conversation around how we collaborate on this transition together,” he adds.

Bridging gaps on ESG investment

IPAs can also help bridge any gaps by providing companies with the data and detailed information they need to make ESG-compliant and sustainability-driven location decisions.

“If it comes to those enquiries, IPAs need to be fully prepared,” Manke says. “Do you have a catalogue of all the parameters that investors would look at? Do you have all the ESG criteria and understand how can they be measured? What are your benchmarks?”

IPAs with their own ESG goals may want to focus on attracting companies that share the same values and build relevant metrics into their investor targeting strategies. “It starts with that and
it ends with being prepared for what the company might be requesting in terms of data and information,” Manke says.

“For us, partnering with investors who share our commitment to sustainability is not just desirable – it’s essential for fostering long-term, responsible growth.”

Wojciech Tyborowski, Invest in Pomerania

“It’s getting more and more important and those companies that don’t care about it too much will certainly get to a point, in the next few years, where they will need to rethink their footprint,” Manke says. “We are advising companies to go ahead and choose the location based on these [ESG] factors. They will increasingly get evaluated by their clients and be under regulatory scrutiny, so we are saying to them ‘think about it before you take a wrong decision’.”

Invest in Finland’s Aumo sees two keys ways IPAs can play a role in this dynamic. “One of the key services that we provide is to deliver the facts and information to a potential investor. So we need to be collecting the information they want, including sustainability criteria. We also need to communicate these evolving needs to our building managers and real estate investors in Finland about what companies are looking for and what their needs are.”

Different roles of IPAs

Achim Hartig, managing director of Germany Trade & Invest and chair of the OECD Investment Promotion Agencies Network, says the IPA’s impact on these factors depends on the remit.

“IPAs on the national level like us are not supporting companies by selecting construction materials or suppliers for them, although we ensure they can connect to infrastructure that provides the resources they need,” he says. “However, there are IPAs that have the whole value chain and the networks to do matchmaking between the demands of the company they’re wanting to attract and the supply of the sustainable materials.”

Hartig also highlights the need for IPA advocacy and ongoing dialogue with policymakers. “In terms of how the aspect of sustainability bleeds into investment attraction work, in many countries this is a chicken-and-egg situation, where sometimes the IPA is a little bit more advanced and the politicians have to get ideas and inspiration from them, and in other cases it’s the reverse,” he says. “In my experience, strengthening this dialogue with the ministries and being transparent about what we see when it comes to sustainability makes possible for them to make better decisions.”

IPAs should also lead by example and instil ESG at the heart of their economic development strategies and institutional frameworks. “It’s very important for an IPA to really embrace ESG in their own practices. It is something my clients do appreciate. They will actually favour ESG-compliant destinations, or at least destinations that are doing all in their power to become ESG compliant,” says Locationperspectives’ van Herwaarden.