In our new ESG blog series, we explore the growing emphasis upon Environmental, Social & Governance (ESG) in the Real Estate sector and the opportunities presented by digital technologies to support ESG strategies.
Lately, it has become impossible to ignore the visible shifts in the finance sector towards a low-carbon economy. Sustainability-linked loans, significant investment commitments in climate transition projects, and divestment from fossil fuels are all on the rise, prompting investors to reconsider the sustainability credentials of their portfolios.
These market shifts are forcing businesses worldwide to re-evaluate their Environmental, Social and Governance (ESG) proposition. ESG is a set of criteria for evaluating stocks used by investors who want to keep their portfolios as socially responsible as possible. The idea is not only to achieve strong investment returns, but to also find sustainable investment opportunities that are beneficial to employees and society as a whole.
ESG has grown exponentially from the niche and narrow to a necessary part of institutional investing and asset management. It is therefore vital, now more than ever, that businesses present a strong ESG proposition and equip themselves with the tools they require to succeed. From a business perspective, having a strong ESG strategy makes perfect sense and can help organisations increase their value by facilitating top-line growth, reducing costs, minimizing regulatory and legal interventions, increasing employee productivity and optimizing investment and capital expenditures.
Now, as the world gears up for CO26, and as pressure mounts on the race to net-zero, the clock is well and truly ticking for companies to step up their efforts to mitigate climate change. Sustainability needs to become front and central to any business strategy – and the real estate market is no exception.
Figures from the UKGBC indicate that the built environment is responsible for 40% of the UK’s total carbon footprint, meaning there is massive scope within real estate to drive the net-zero transition.
Furthermore, the Architects Climate Action Network (ACAN) has warned that embodied carbon can account for as much as 75% of a building’s carbon footprint over a typical 60-year lifespan. In their report, The Carbon Footprint of Construction, released in February 2021, ACAN point out that: “Currently, and despite their significance, embodied carbon emissions of buildings are unregulated in the UK and have been little discussed in public until recently.” If the real estate market is to truly play its part in tackling the climate and ecological crises, limits on these emissions must be put in place with robust ESG strategies required to ensure that portfolio owners and investors are playing their part.
Frustratingly, the real estate market is now one of the few markets remaining without proper digital infrastructure - a vital component for success within the ESG game. Digital innovation in real estate has the possibility to really help, and solutions do already exist, but consultants need to step up their game in advancing their use of such technologies and will need a strategy for the technology as well as for ESG.
Digital Twins are one example of tech innovation which can have a massive impact in this sector. When it comes to decarbonisation, real estate owners and developers have to upgrade, through technology, the entire lifecycle of their assets, from the supply chain of materials to the operations of their assets.
At IES, our ICL Digital Twin technology can enable a fully digitised approach to the targeted reduction of scope 1,2 and 3 greenhouse gas emissions (as set out by the GHG Protocol) by creating a 1:1 digital replica of your building assets, together with bespoke portfolio level interactive dashboards from which to measure and communicate ESG. This makes it possible for REITs and property investors to track KPIs on everything from energy, water, waste, social factors, health & wellbeing, and even COVID safety.
Not only that, our Digital Twin gives decision-makers reassurance that potential investments in building upgrades can deliver on the desired level of cost savings and subsequent ROIs. Already we are showing real estate clients how to realise 10-15% better energy performance than relying on traditional building management systems (BMS) alone and up to a 20% reduction in capex.
Perhaps even more importantly, the Digital Twin, once created, becomes an invaluable lifetime digital asset from which to monitor, manage and implement sustainability goals across the entire lifecycle of your building assets and portfolios. To this end, digital innovation – and more specifically a digital twin – can be real estate’s ticket towards an overall more sustainable, resilient and profitable future.
Watch out for our next ESG instalment where we’ll take a deeper dive into more specific examples of the ESG KPIs which can be addressed via our dedicated ICL Digital Twin technology and provide an overview of our scalable investment approach to full sustainability digitisation for real estate portfolios.
In the meantime, to find out more about how IES technology can support your ESG strategy or to discuss your requirements, please feel free to contact email@example.com.