Delve into the journey from ESG awareness to integration and the crucial role of technology for real estate asset managers. Uncover the impact of ESG legislation, sustainability initiatives in UK CRE, and compliance with global benchmarks like GRESB.
Environmental, social, and governance (ESG) will continue to dominate the public and political agenda in 2024. Real estate investors, owners, and lenders are focusing on the UK’s ESG-focused legislation that has continued to develop in recent years.
ESG was not considered an important aspect of commercial real estate (CRE) until the mid-2000s. The release of Who Cares Wins, a 2004 report from the United Nations, featured one of the first mainstream mentions of ESG in a modern context. Two decades have passed since its publication, and CRE’s output still accounts for a staggering 39% of global emissions.
The Intergovernmental Panel on Climate Change (IPCC) has targeted a 50% reduction in Greenhouse Gas (GHG) emissions by 2030, urging CRE to overhaul practices within a decade.
Traditional, manual processes do not cut it for these strict reporting requirements. As reporting on portfolios becomes increasingly mandated, companies must choose a path to decarbonisation. Using technology and real estate data is instrumental to achieving this goal, as it enables real estate asset managers to report effectively, accurately, and efficiently.
What key directives shape the operations of CRE players in the UK?
ESG is gaining momentum as these technology developments leverage advanced solutions to optimise energy utilisation, enhance occupant comfort, and enhance building performance. Driven by UK ESG legislative measures, which serve to strengthen ESG’s presence, the real estate market is improving its sustainability. These initiatives underscore the importance of energy efficiency, climate disclosures, and compliance with global benchmarks.
The Global Real Estate Sustainability Benchmark (GRESB) issues standardised global benchmarks that align with international reporting frameworks. The assessment process encompasses three key domains: management, performance, and development. A variety of aspects are evaluated, including energy use, GHG emissions, waste management, and water usage.
Investors’ demand for robust GRESB ratings shapes investment decisions. Validated real estate data creates industry benchmarks, enabling individual companies to compare their performance against established standards, and fostering a culture of continuous improvement.
The 2018 Minimum Energy Efficiency Standards (MEES) for commercial buildings mandates a minimum Energy Performance Certificate (EPC) rating of E, with stricter inspections. Stricter inspections of heating and air conditioning systems are now obligatory. To facilitate the transition for owners, measures such as the Green Homes Grant and the UK Green Finance Strategy have been introduced.
Climate disclosures align with the Task Force on Climate-Related Financial Disclosures (TCFD) for premium-listed companies since 2021. The Taxonomy Regulation categorises sustainable goals, impacting UK CRE practises post-Brexit.
The European Union introduced the Taxonomy Regulation, a classification system for environmentally sustainable objectives. While the UK intends to broadly retain this taxonomy framework post-Brexit, full alignment with EU law is yet to be confirmed. These directives collectively steer CRE players towards more sustainable practices and foster a resilient and responsible real estate market in the UK.
How do technology solutions enable real estate asset managers to meet these goals?
As the deadlines for carbon reduction approach, companies must track, quantify, and control emissions. While consultants can handle this on a building-by-building basis, the expense is substantial, and the methodology lacks standardisation.
Recent research from Investec identifies challenges faced by businesses that need an ESG strategy. Those struggling with the advancement of ESG legislation in the UK have attributed this failure to competing strategic priorities (36%), and a lack of clear data and metrics for monitoring performance (35%).
Tech solutions are the optimal way to allow CRE stakeholders to reach net zero goals. Oliver Doraisamy from Deloitte points out, “Technology solutions can help to collect and consolidate data to support various ESG objectives.” In this way, technology facilitates data collection and consolidation, supporting diverse ESG objectives. Improved ESG performance aligns with global sustainability goals and yields commercial gains.
In real estate, technology-driven solutions transform ESG metrics. Digital tools, like Building Management Systems (BMS) and IoT sensors, enable real-time monitoring of energy consumption, identifying inefficiencies and thereby reducing impact. Additionally, smart buildings optimise energy usage and align with ESG goals, while data analytics and machine learning (ML) incorporate ESG into investment decisions.
Stonal’s platform, driven by AI, enhances clients’ ESG data visibility, automating impact calculations and report generation. It transforms complex data into actionable insights, benefitting the industry with technologically-driven asset management. Stonal now allows users to compare asset performance through integrated scorecards. Shifting the weighting of the E, S, or G via Stonal’s framework aids clients in understanding necessary changes for compliance. Stonal’s pre-defined system ensures efficiency and global compliance for users lacking their own framework.
By leveraging technology solutions, real estate companies can efficiently manage ESG requirements from their buildings and achieve ambitious net-zero goals. The optimisation will skyrocket from there on, positioning stakeholders to face improved brand reputation, heightened customer satisfaction, reduced operating costs, and contributing to long-term financial success.
