Real estate must use leading indicators not historic data

There is a real gap between the real estate industry’s intent and the resulting action when it comes to ESG and net zero carbon, according to JLL’s global head of sustainability and ESG Guy Grainger.

“To show real leadership and credibility to your capital investors, also future tenants and users of buildings, you need to really move on from just being in a disclosure reporting mode into a business case mode,” Grainger told Real Asset Insight’s Richard Betts during the recent EPRA Sustainability Summit.

And he said the industry should look to leading indicators “We tend to look at historic evidence to tell us what the value of tomorrow will be. We need to change that mindset because actually the value of tomorrow is not dictated by data today.”

“We need to create the data of the future. That makes the business case and you can see that playing out in the marketplace in different sectors, in different locations. There is a lack of supply of net zero carbon buildings and the demand is only increasing,” Grainger added.

“Actually the value upside is probably better than we anticipate, but it’s future value. You cannot expect valuers who are asked to look at historic data to predict the future.”

Looking at the global picture there is a tendency to look at the national rhetoric and politics, Grainger said, but the policy that’s affecting buildings is largely originating at a city level.

“Cities are very good at doing copycat policy or legislation. New York is going heavy on carbon tax; Paris is going heavy on circularity, so that it’s really difficult to demolish buildings; the UK is going quite hard at nature,” he said.

“There are a lot of different dynamics at work here, but buildings account for between 60% and 80% of carbon emissions in cities, so they’re in the crosshairs as far as policy at a city level is concerned.”

But he added:  “While the Americans are incentivising things, the Europeans are taxing things a little bit”

Regulation could become more extensive too. “All the leading indicators are that climate change will cost businesses severely, either in direct damages, uninsured buildings or actually in terms of capital or demand. So, yes, the leading indicators are all showing exponential curves.”

“The question is, what’s your response? Because if you are dependent on lagging indicators or historical cycles, you will not necessarily see what’s coming in the next five years, which is pretty material.”