ESG (Eenvironmental, social, and corporate governance) in real estate

The threat posed by climate change, degradation of natural environment and intensive consumption of natural resources (fossil fuels, water) becomes more and more noticeableperceptible. In this case, it is necessary to take measures to contain the negative human impact on the environment. Sustainable development is becoming a necessity. It is already necessary today to change the way of thinking in conducting business.

The actions of international institutions, combined with changes that are taking place in societies, are leading to the spread dissemination of the following in business practice: metrics for environmental benchmarks and, social issues, as well as quality and management tools in business practice. ESG has become a factor with a huge impact on every area of the global economy.

ESG will also have an impact on business in such areas as attracting investors, financing and insurance terms, investment risks, operating costs, goodwill or reputation. One of the key industries in the context of sustainable development is real estate.

Real estate plays a major role in environmental pollution, cumulatively accounting for 37% of global air emissions, 28% of which are due to the operational cycle of buildings, and 9% are emissions related to the construction process.

The real estate sector is also a key component of the green transition due to its high consumption of various energy carriers. Buildings account for 40% of Europe’s energy demand, with 80% of that energy coming from fossil fuels.

Another unfavorable factor is the relatively low quality of the building stock: – almost 75% of facilities in Europe have low energy efficiency, with only about 1% of the stock undergoing renovation annually.

In the real estate industry, the first step should be to analyze one’s own real estate portfolio and the criteria for making investment decisions. The next step is to implement the three ESG factors, i.e. the environmental, social and governance factors, at each stage of a building’s life cycle: from planning, construction, to purchase, lease and management.

Aleksandra Grabarska

Barbara Czerwińska

Sources:

FULL REPORT_2022 Buildings-GSR_1.pdf (globalabc.org)

In focus: Energy efficiency in buildings (europa.eu)

ESG Report 2023 prepared by JLL Poland