ESG – a revolution that will change the real estate industry

Issues related to ESG, i.e. the assessment of investments in terms of care for the environment (E), social responsibility (S) and corporate governance (G), are changing in front of our eyes from the phase characteristic of early development and testing, into a permanent trend that will be in the coming years one of the main factors influencing changes in the real estate market.

Not by accident, in 2021, Blackstone Group, one of the largest investment funds in the global real estate market, announced that it expects all companies to submit ESG reports. The same entity also announced a 15% reduction in CO2 emissions in all its new investments in 2020.

According to the International Team on Climate Change (IPCC), the construction sector is responsible for 38% of global CO2 emissions (39% according to Data Sources Global ABC Global Status Report 2018, EIA). The carbon footprint of a building can be divided into two components: the operational carbon footprint (i.e. energy used for the efficient functioning of buildings) and the built-in carbon footprint, i.e. emissions related to the construction of the building (e.g. production and transport of building materials and related to the construction process). These numbers indicate that we are not dealing with a marginal phenomenon, but with almost revolutionary changes that will soon begin to define the entire real estate industry. As Deloitte rightly points out in the study – ESG Real Estate Insights 2021: "The emergence of global mega-trends, understood as largescale social, economic and environmental changes, often with a high impact, will require the real estate sector to revise its approach to sustainable development".

 The main assumptions of the Paris Agreement and the European Green Deal is to reduce greenhouse gas emissions.

In order to change the general assumptions, European legislation was created, including NFRD (Non-financial Reporting Directive) and SFDR (Sustainable Finance Disclosure Regulation) on disclosure of non-financial data by companies regarding ESG aspects. Additionally, in order to counteract the phenomenon of "green-washing", the investment will be verified in terms of compliance with the so-called Taxonomy, i.e. a legal act of the European Union of 18 June 2020 establishing a framework to facilitate sustainable investments.

Investors who have been dealing with sustainable development for years by certifying their investments in BREEAM / LEED schemes will have a partially easier task of transformation, as a certain group of Taxonomy criteria is consistent with the assumptions of multi-criteria certification.

White Star Real Estate received its first BREEAM certificate for the design stage in 2011 for The Park Warsaw – Building B1, which was confirmed by the final certificate in 2013 with an Excellent rating. For several years, multi-criteria certification has become a standard on the office market, while warehouse investments have been overlooked in the past. Currently, most developers of warehouse space certify their new investments.

White Star Real Estate received the first interim certificate in the BREEAM Europe 2009 system for the M1 warehouse of the Diamond Business Park Ursus investment in 2013 together with Sweco Polska (then Grontmij Polska). Ultimately, the entire Diamond Business Park Ursus warehouse park is certified at the Very Good level.

Currently, over 80% of the net leased space in the White Star Real Estate portfolio is BREEAM certified.

It’s important to remember that environmental data is measurable, which makes it easier to collect and report. On the other hand, social and governance indicators that also make up ESG strategies are more declarative, which often makes reporting difficult. At the same time, it is the activities in line with the subject matter of S (society) and G (corporate governance) that are indicated as those that may affect the competitive advantage of individual entities and investments.

Today, the legislation introduced in the field of ESG clearly indicates that there is no other direction for the real estate industry than a responsible approach to construction, which is both concern for ecology and sustainable development of the entire business. The introduction of similar regulations and their implementation by investors will only accelerate the spread of such solutions in Poland to the benefit of the entire industry and its perception by the market environment.

Author: Agnieszka Wójcicka, Sustainability Manager and BREEAM Coordinator, White Star Real Estate

This article comes from magazine:
FOCUS ON Business #4 May-June (3/2022)