• ESG overview in the Real Estate sector

    October, 2022

ESG analysis and socially responsible investments are taking on the challenge of transforming the real estate market in terms of sustainability and energy efficiency. The European Union is set to be climate-neutral by 2050. Therefore, far-reaching measures are taken to decarbonize the European economy. The real estate sector is in focus, as buildings are responsible for 36% of CO2 emissions in Europe. The Green Deal is strategically relevant for real estate companies – it will impact business models, market demand and financing conditions.

Despite the measures that are being implemented to increase awareness of ESG investment, only 1% of the world’s buildings are actually Net-Zero carbon. Investors and large investment funds are trying to reduce the energy consumption of real estate assets and are expected to reduce energy use in the market by 30% in 2030.

Energy transition in the real estate sector will take longer than expected and remains very complicated for financial reasons. This is mainly because transforming all real estate assets in the market into ESG compliant will have a huge cost in terms of time and money. Therefore, real estate assets that are already ESG-qualified with sustainability certifications have better perspectives for future growth and greater profitability in the long term.

In fact, Spain is making this transition faster than the rest of Europe, with Madrid at the forefront of sustainability in Europe, with c. 30% of office buildings with BREEAM and LEED certifications, ahead of Paris and London and almost doubling the European average of 17%. For users, sustainable workspaces have become a strategic issue, while investors measure green finance performance and reputation as a transformational process beyond a one-off moment.

In short, monitoring the levels of compliance with ESG criteria are key in the valuation processes of real estate assets and will undoubtedly be even more decisive from now on. These regulations create both opportunities and challenges for real estate: Opportunities for product differentiation, not only in relation to the environmental aspect but also with respect to the social impact of real estate projects on people (low-income and vulnerable populations in need of support and stability); and challenges, when it comes to real estate data gathering to meet these disclosure requirements and in identifying the necessary resources.