Profit, People, Planet – this is a slogan that appears more and more often in the strategies of many companies. While profit continues to play a key role, environmental and social issues are becoming increasingly important. This concept could not bypass the industry, which is responsible for 39% of greenhouse gas emissions. Does ESG have a chance to take over the real estate market? Why and how is it worth implementing?
What is ESG?
The abbreviation ESG (Environmental, Social and Governance) defines three aspects that should be taken into account by every organization in order to implement a sustainable development policy. “E” is the environmental criteria: the energy the company consumes, the waste it makes and the resources it needs, and the resulting consequences for living things. This aspect also covers carbon dioxide emissions and impact on climate change. “S” refers to the social aspect, the relationships a company builds and maintains, and its reputation among the people, institutions, and communities in which it operates. It also includes labor relations, diversity and inclusiveness. “G” stands for governance – an internal system of practices, controls and procedures adopted to manage the company, make effective decisions, comply with the law and meet the needs of external stakeholders.
These are areas closely related to the functioning of any business, regardless of the industry. Each company, because by consuming energy and resources, has a specific impact on the environment (and is influenced by it), each operates within a community and each is a legal entity that must be managed. Currently, due to the EU directive 2014/95 / EU of 2014, and the amendment to the national accounting act, large Polish stock exchange listed companies are required to publish ESG data in their non-financial reports from 2018. Soon, such rules will apply to many more companies.
ESG and commercial real estate – is it necessary?
Depending on the specificity of the company, some of the ESG postulates may be more relevant to the real estate industry. The protection of the environment is certainly such an area. According to data from the United Nations, buildings (both residential and commercial) and construction account for 36% of the world’s energy consumption . Moreover, this sector even trumps transport.
 United Nations Environment Program, Global Status Report for Buildings and Construction, 2019.
In its report, the United Nations emphasized the importance of buildings and the development of urban spaces for the realization of their global vision of achieving sustainable development. According to their data, around 70% of the population will live in cities by 2050. Therefore, taking care to improve the comfort and quality of life of residents by adjusting construction standards, and minimizing the impact on the natural environment and its surroundings will be of key importance in the coming years.
Sustainable development on a rising tide
Designing an ecological building is no longer a distinguishing feature. Such practices have become the new standard, and the largest investors draw attention to, among others, whether the building has an eco-certificate. According to data from the Global Sustainable Investment Alliance report, 35.9% of total assets under management in Europe, the USA, Canada, Japan, Australia and New Zealand are sustainable investments. Similar interest can be seen among tenants who are increasingly looking for an environmentally friendly space.
Tenants of commercial facilities are more and more aware of the human impact on our planet and want to minimize their negative contribution by choosing environmentally friendly spaces. Therefore, landlords implement ecological solutions. This applies not only to newly built buildings, but also to aging buildings that are awaiting modernization or reconstruction. The facilities are adapted to new ecological requirements, including through the appropriate selection of materials at the stage of fit-out works and subsequent decisions related to property management regarding the integrated BMS system, the choice of energy supplier from renewable sources or “prosaic” decisions, i.e. waste segregation. Such activities have a positive effect on the long-term value of the property, – she argues Lucyna Śliż, Head of Development, Reesco Retail.
The hospitality sector is also becoming more and more eco-friendly. Modern hotel facilities are now energy-sustainable buildings that are equipped, for example, with installations limiting water consumption or controlling the degree of ventilation / air conditioning depending on the occupancy of the hotel room. In addition, the interiors are designed in such a way as to facilitate the so-called “Soft & hard refurbishment”, which is systematically predicted after – respectively – 7 and 14 years. This reduces the consumption of materials and the negative impact on the environment. The hospitality sector also does not forget about the “Social” aspect, i.e. the third component of the ESG abbreviation. This is part of the integration of hotels into the functional (and social) fabric of cities. The ground floors of facilities are more and more often open to the life of local communities, not only to the needs of hotel guests.
Does ESG have to be expensive?
The ESG philosophy will be the easiest to implement in the areas where it can bring real savings for the company. Energy-saving devices or LED lighting – these are the elements that appear more and more often, among others in office spaces. The use of pro-ecological solutions does not have to be associated with higher expenses. One example is the AFI V.Offices building in Krakow, designed by the Iliard studio, which is part of the Reesco Group. The building obtained 98.9% points during the BREEAM certification, which is the second highest result in the history of this standard, and its implementation did not require any additional financial outlays.
The AFI V. Offices building is a unique investment for us due to its certification result. Interestingly, we managed to achieve this result without having to come up with amazing solutions. We approached the entire design process very reliably from the very beginning and, in cooperation with a very conscious investor, we managed to implement this investment without exceeding our budget. Moreover, we have reduced energy consumption by 37%, CO2 emissions by 34% and water consumption by over 57%. Therefore, I can say with full confidence that sustainable construction does not have to be expensive – adds Wojciech Witek, co-founder of Iliard and board member of Reesco Hospitality.
 Global Sustainable Investment Review 2020
Over the years, real estate investments constitute an increasing part of many investors’ portfolios – thus their share in the world increases, which in turn determines their quality. It’s important to understand how much of an impact the real estate investment class has on our environment. Recent years have seen a significant shift towards such values as care for the environment and society, in which real estate plays a significant role. Although this trend continues to develop, it is already evident that companies wishing to establish long-term relationships with investors or tenants should implement an ESG strategy. What is more, such activities can no longer only serve to improve the company’s image or build a competitive advantage, but also have a real impact on the quality of people’s lives and improve the quality of the environment. The global economy will never be sustainable. However, we are in a constant process of transformation, with particular emphasis on environmental and human issues, and companies that do not adapt to these changes may have problems with survival in the long run – says Artur Winnicki, CEO Reesco Group.
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