Chris Flexen ESG Goals in Real Estate for 2022
Opportunity for real estate to be at the forefront of the ESG global agenda
The GRI Global Committee's on ESG & Impact Investment gathered C-Level real estate investors, asset owners, operators, and developers.
Important Takeaways:
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COP26 milestone has set capital and debt commitments to the real estate market;
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Carbon pricing is the main way to measure climate and investment risk;
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Enhancing partnerships between the public and private sectors: a carrot and stick approach?
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In the long term, retrofitting presents the biggest challenge and opportunity for investors to be at the forefront of the ESG agenda;
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The US appears to bring innovative and advanced building performance standards;
- A collaborative sharing process between all stakeholders involved in the industry is essential – sharing data and leadership initiatives would drive the agenda further
COP26 has been considered by many a new turning point for all stakeholders in the industry since now capital and debt will be tied to net-zero commitments and transition plans. If only the near future may reveal how the industry is responding, a sense of urgency among leaders rules as they set ambitious targets looking way before 2050.
According to exclusive research provided by JLL in the Committee session, carbon pricing appears to be one of the main strategies in response to the COP26 milestone. Data suggests that many investors consider it an approach that truly demonstrates the underlying value of a real estate asset. It might also change behavior in ways of working privileging a long-term vision.
JLL: "The role of ESG in Built Environment & RE Investment"
When it comes to rules and regulations, the vast majority of leading players believe that stronger partnerships between governments, investors, and corporate/occupiers are essential to anticipate the net-zero agenda.
Take the retrofit market as an example. It may become a huge opportunity shortly. According to analysts, retrofitting is potentially the easiest way to get the greenest building and meet carbon reduction targets. However, it would be necessary for investors and lenders to rely on longevity as in the short term returns would probably be reduced.
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Participants also suggested whether a carrot and stick approach would be key in the course of time. As governments commonly are in charge of doing the sticks, thinking about private incentives as carrots may be a way out. Tangible ESG targets include carbon pricing policies, mandatory reporting, and building requirements. This may show that innovative companies are outpacing traditional policymakers when it comes to moving forward on the ESG agenda.
In this regard, real estate companies are setting solid targets and building performance standards, particularly in North America. Moreover, a wider alignment between American cities, corporations, and investors is taking place.
According to some ESG-focused senior asset managers, however, there seems to be a disconnection between ambition in delivering net-zero buildings, occupiers’ expectations, and corporate commitments. The main perception in the virtual room was that there is still a need for more data and knowledge sharing on carbon footprint, and there is also a lack of R&D on environmental targets.
Furthermore, collaboration among leaders may catalyze the process. From JLL's research, Guy mentioned that the majority of occupiers and investors agree that a strong partnership between cities, occupiers, and investors is instrumental to driving the net-zero carbon agenda.
"The cost of inaction is now greater than the cost of action. Radical collaboration is needed because this is about systematic change to business models."
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