ESG’s role in business models and strategies for the real estate and construction sector
By Katarzyna Chwalbińska-Kusek, head of ESG and Sustainability, Savills.
ESG (Environmental, Social and Governance) aspects are at the top of business agenda today. For many companies, reporting ESG issues is either mandatory or under active consideration. Improving energy efficiency and increasing renewable energy is the key goal of the EU on its way to carbon neutrality in 2050. Buildings and industry are among the biggest energy users and contributors to greenhouse gas emissions (GHG).
The current geopolitical situation has destabilised the energy market and boosted energy prices. Business has finally realised that energy is a scarce resource and energy efficiency needs to be taken more seriously. As energy can run out, it is crucial to consume less of it.
The built environment accounts for 40% of final energy consumption, around 36% of energy-related greenhouse gas emissions in Europe, creates an estimated third of the world’s overall waste and is responsible for more than 20% of global water consumption. The built environment also has a significant impact on the human health and wellbeing.
As the EU wants to turn the urgent challenges into opportunities, the European regulation under the Green Deal aims to cut 55% of CO2 emissions by 2030 and achieve climate neutrality in 2050. Therefore, ESG needs to be an integral part of business strategies and business models for real estate and construction market players today; energy efficiency needs to be implemented as one of sustainability elements to benefit the building’s users, the planet and the bottom line.
What can be done by the building owner & property manager?
In the past, energy and carbon reduction efforts were largely focused on easy-to implement energy efficiency measures. This won’t be enough to achieve the deep decarbonisation that’s needed across the real-estate sector today. Energy usage and carbon emissions of buildings must be reduced urgently, as current situation requires a combination of demand-side energy management and energy efficiency strategies, which involves strategies designed to decrease the amount of energy used by facilities for reasons such as: reducing consumption on the grid, saving money, reducing air pollution and decarbonisation of a property.
To create a fully sustainable buildings and offices the owners should also implement co-benefits of energy efficiency – the permanent reduction of energy demand through the installation of efficient systems, including improvements and upgrades to existing equipment or installations of new devices.
As the majority of energy in a building is consumed by tenants, building owners need to remember that maintaining a good relationship with tenants is key to achieve carbon emissions reduction in a building. Collaboration and communication with tenants are critical to energy savings and carbon emissions goals.
Tenants should be engaged in a building’s decarbonisation strategy from lease negotiations through space fit-out and ongoing space operations. Engaging tenants throughout the leasing cycle can help to achieve the best energy efficiency and decarbonisation outcomes for both landlords and tenants.
Is ESG the same as Green Building Certification?
However, one needs to note that ESG is complex, and it is much broader than green building certification such as BREEAM, LEED or WELL building standard. Also, to reach their net zero targets, companies need much broader strategies and interventions than green building certification. Green building certification helps reach some ESG targets for buildings, and is a great way to achieve specific goals of a broader corporate ESG strategy.
A building with an ESG strategy will have a limited negative impact on the environment and its users. As the ‘E’ aspects relating to the use of resources, the positive impact on biodiversity, greenhouse-gas emissions, climate-change adaptation and mitigation are very well understood and, in many cases, required by the increasing EU regulatory demands, the ‘S’ may still sound a bit enigmatic for investors and property managers alike.
The rise of ‘S’ in ESG
Nevertheless, today we observe the rise of social and governance issues, with a focus on diversity and inclusion (D&I) and human rights. The question is how to transfer these aspects to ESG charters for buildings. We need to examine the impacts our built environment has on the health and wellbeing of the users, and the social value outcomes affecting people, supply chains, residents, occupiers and wider communities.
Aspects that should be adopted widely by the construction industry include the building’s D&I policy – its impact on users’ long-term health – creating a healthy indoor environment and providing people with healthy choices regarding daily commuting, nutrition and lifestyle in general. Also, the building should be opened to the local community as much as possible and play an integrating role for it.