ESG Impact, through Real Estate management

The impact of Real Estate

Building constructions and operations accounted in 2019 for 35% of the world’s energy consumption, and also accounted for nearly 38% of energy-related CO2 emissions, worldwide…

For these reasons, the UN estimated that, in order to limit the rise in global temperatures to less than 2 degrees by 2030, the Real Estate sector must reduce the average energy intensity of buildings by at least 30%.

Obviously, greener buildings that reduce the consumption of natural resources can help to reduce this footprint. Furthermore, new technologies might also come to the rescue, by optimizing the consumption of energy and water, whereas, at the same time, contributing to enhance the quality of life of occupants—if built, by design, on the top Green IT systems.

Progress is fundamental not only for new buildings, but also for the existing park, since more than 70% of all the buildings in the world is composed of buildings 20 years old and older.

SDG and the EU Green Deal: 2 levers for change

To foster the transition toward a greener Real Estate management, regulations and initiatives have emerged, asking for a reduction of its environemental impact. At the international level, the UN SDGs were a first lever for greening the Real Estate sector, and for the development of smart cities and smart territories. The UNEP FI indeed also created a dedicated working group on Responsible Property Investment.

At the European level, the greening of existing buildings is an area of great interest for the EU’s ambitions to achieve climate neutrality by 2050. The Commission, targeting a wave of renovation, has announced a €250bn investment plan linked to deep refurbishment and energy-efficiency related reforms, in all member States. These efforts should help achieve the EU’s target of reducing GHG emissions from buildings by at least 55% by 2030.

Impact Real Estate on the rise

On the social dimension, the European Commission and ELTI estimated to €140bn the yearly shortage in social infrastructure spending in Europe, especially in Social Housing, Health Care, Long-Term Care. In this global context where our societies face social and environmental challenges, Impact Real Estate has been firmly growing, in the recent years.

Impact Real Estate, as a type of impact investing, aims at combining Real Estate management with the pursuit of specific social and environmental outcomes, for instance:

  • social housing;
  • affordable housing;
  • energy efficiency;
  • improved access to urban infrastructure;
  • urban regeneration;
  • etc.

The interest for this topic is growing, and, for instance, a dedicated impact investing subgroup has been created some years ago within the ESG Committee of INREV, the European Association for Investors in Non-Listed Real Estate Vehicles.

Towards a measure of Real Estate ESG impact

Can Impact Real Estate can move even further forward, beyond impact investing funds ? We believe so. We believe indeed that it is possible to go beyond social or environmental impact investing, which targets very interesting, but also very specific ESG outcomes, towards a global ESG impact investing, taking into account the whole ESG impacts of the Real Estate management industry. But how ? Several opportunities can be leveraged:

  • First, the identification of the relevants ESG impact indicators for the Real Management industry and related activities (Construction, etc.)
  • Then, the measurement and tracking of the ESG performance of these ESG impact indicators, i.e. by measuring the ESG positive impact on the local communities;
  • Taking into account the Physical Risk linked to the climate change—which obviously is strongly geography-dependent;
  • Report the SDGs contribution and ESG impact for the Real Estate funds;
  • Engage with emitters to enhance their ESG perfomance on specific key ESG topics.

It can seem a long way to go, but accelerators exist, along the way. On our side we provide several datasets and other solutions that can be leveraged: ESG Impact ratings, Climate Change ratings, and Physicial Risk ratings for countries, regions, and cities (and also companies); Key ESG Risk Topics for 158 sub-industries (including 12 Real Estate sub-industries); Scorecards: SDGs Alignement, ESG Impact, Climate Change, etc.; Thematic ESG Funds concepts (Smart Territories, Smart Healthcare, etc.)…

Finance is probably the greater lever we have to tackle the social and environmental issues our socities are facing—and Real Estate management is probably one the key financial sector to act upon, in this race against the clock.

References

Credits

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