Most industries are now feeling the pressure to step up their Environmental Social & Governance (ESG) credentials, and the Real Estate sector is certainly no exception. With tightening regulations and more stringent rules surrounding greenwashing, climate-related financial disclosures and social impacts, having a robust ESG reporting strategy in place is no longer optional but an essential component for any successful business.
According to Net Zero Tracker, 90% of global GDP is now covered by net-zero targets and, already this year, we have seen an influx in the number of ESG headlines hitting the news. In March it was widely reported that more than 680 financial institutions with US$130+ trillion in assets had called on nearly 10,400 companies to disclose their environmental data this year.
Let’s not forget, of course, the UK’s recent mandate on TCFD-aligned disclosures, which came into force for large private sector organisations on 6th April. The move, which is estimated to encompass approximately 1,300 organisations in the first instance (and anticipated to be expanded by 2025) aims to increase climate-related engagement between investors and the companies they invest in, with the hope that this will increase environmental ambitions and accelerate climate action.
In Europe, policy makers will be hoping to make a similar impact with the further tightening of ESG-focused EU laws on the horizon (in the form of the next phase of the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD)). While in the US, the Securities and Exchange Commission (SEC) - the US’s top financial watchdog – has also proposed that publicly traded companies report information on their greenhouse-gas emissions (including those of their suppliers and consumers) in one of the Biden administration’s most sweeping environmental actions to date. It seems the whole world is waking up to the ESG movement.
Of course, with rising energy costs being a top concern for many businesses right now, it is understandable that there may be concerns about the cost involved in implementing effective ESG strategies. However, with the right tools and processes in place, it is possible to balance these competing priorities to the benefit of both your business and the planet.
Largely, the shift towards more stringent ESG practices has been welcomed by the real estate sector. According to Deloitte’s 2022 Commercial Real Estate Outlook, 60% of real estate respondents believed that ESG initiatives are driving new business opportunities for their organisation, and half of them think that these initiatives are giving them a competitive edge.
This makes sense as tenant demand for sustainable buildings is increasing. Half of respondents to the 2021 RICS Sustainability Report claimed that green leases command premium rents, and 30% state that brown buildings (those without sustainability features) offer reduced rents to compensate tenants.
This trend is undoubtedly being amplified by more stringent building regulations and other green rating systems. In the UK, for example, energy performance-based ratings (modelled on the NABERS UK scheme, which rates buildings on their actual in-use performance) are due to become mandatory this year, and as the climate crisis rages on, other voluntary green rating schemes are seeing a surge in popularity too. Investors are increasingly being drawn to sustainable properties with high level property certifications, under schemes such as LEED, BREEAM and NABERS, meaning boosting the environmental credentials of your building or portfolio is not only (first and foremost) good for the planet – it also makes good business sense too.
With buildings currently responsible for 39% of global energy related carbon emissions: 28% from operational emissions, such as heating, cooling and power, and the remaining 11% from materials and construction, ESG is now playing a prominent role in every stage of building lifecycle. Energy efficiency is no longer a “nice to have” but an absolute must for any property owner or developer in order to preserve the value of their assets.
Of course, there are important social considerations for real estate owners to factor into their ESG strategy too. Buildings are now recognised as playing an active role within their communities, and owners and investors need to be aware of the social impact of their assets across a whole range of criteria including: affordability, health and wellbeing, smart infrastructure, access to resources, the impacts on jobs availability and crime reduction, to name just a few.
Property owners therefore need to be tracking key ESG metrics across their buildings and portfolios at every stage of their lifecycle, but the task in itself can seem daunting and many do not know where to start. Of course, there are ESG frameworks such as GRESB and SASB, but is there a better way?
At IES, we believe that technology – specifically Digital Twin technology – holds the answer to stepping up your ESG game in 2022. But don’t just take our word for it – a recent Google Cloud survey found that technology innovation is the top area executives believe will have the most impact in tackling sustainability challenges, and about three in four executives cite technology as being critical to their future sustainability efforts, including measuring and reporting on the impacts.
A particular source of anxiety is the massive potential cost of retrofitting existing buildings to comply with ESG requirements. A 2021 report from Colliers estimates that this could be in the region of €7 trillion in Europe. Spread over the next 25 years, that equates to a typical annual volume of investment activity in Europe of around €300 billion. This is where the digitisation of the built environment is proving critical, and the valuable data it generates will help realise ESG KPIs and guarantee the cost-effective development and delivery of healthier, safer, and more efficient buildings and communities.
This is an area where we are ideally positioned to support. Using our cutting edge ICL technology, our team of in-house specialists can create a highly accurate digital twin of your building assets or portfolios. Digital twins can identify high/low performers across real estate portfolios, monitor and enhance the operational energy and internal environmental performance of individual buildings, and virtually test out and understand the impact of different ‘what if’ net-zero investment scenarios. Delivering a holistic platform that can map out step-by-step how entire portfolios can be brought into line with ESG and net-zero targets, as well as tracking and communicating these outcomes.
The technology is plugged into a property’s Building Management System (BMS), other sensors or systems to retrieve energy, equipment operation, indoor air quality, temperature, and occupancy data in real time, and arranges and analyses this data to determine the best strategy to improve energy efficiency, deliver healthy buildings and reduce costs. You can measure, benchmark and continuously monitor key ESG KPIs and identify improvements. We can even set you up with your own bespoke ESG and operational dashboards, providing you with quick access to the information you need to report and helping to demonstrate value across the entire lifecycle of your assets.
As new ESG standards require real estate landlords to understand what their occupiers are doing within their rented spaces more, a digital twin can gather data from tenanted space, and improve tenant experience through online interactive operational dashboards and engagement platforms. Helping to enhance both building efficiency and transparency in property management.
The adoption of realistic performance targets can act as a powerful tool to drive positive change and when utilised properly can play a significant role in the real estate business. Using available digital twin technology, a performance driven approach offers ways of understanding where we are and how we can improve going forward. This approach can lead to a whole host of benefits, not only in terms of ease and efficiency, but also by allowing you to uncover a whole range of energy, carbon and operational cost savings, as well as minimising and avoiding major investment risks.
Interested to find out more about how IES can help you step up your ESG approach? Get in touch with email@example.com to discuss our digital twin services today. For more on our solutions for Corporate Real Estate, visit www.iesve.com/real-estate.