There is no doubt the landscape, post pandemic, will look quite different for the real estate industry. The question is, other than COVID-19, what will be the major influencing factor driving decisions for real estate investors, property developers, tenants and landlords? ESG!
What is ESG?
Environmental, Social, and Corporate Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria are genberally gaining more prominence in the investment world, especially as we start to look beyond the pandemic, and help determine the future financial performance of companies (return and risk).
We have already started to see it gaining momentum in the Real Estate industry too, which undeniably has a responsibility to the places and spaces it creates.
Examples of Environmental factors are Materials, Pollution, Waste Management, Water Consumption and Energy Consumption.
Social aspects could be controversial tenants, stakeholder relations and diversity.
Governance factors include Anti-bribery and Anti-money laundering, Data Protection and ESG Clauses.
How can Property Developers Incorporate ESG?
For both Residential and Commercial Property Development, heightened measures could be implemented that focus on ESG factors, such as sourcing and using recycled materials for buildings or redirecting and re-purposing materials from demolitions into new construction projects.
Energy-efficient lights and appliances could be installed in buildings.
We also anticipate an increase in the demand for renewable energy, including on-site renewables, off-site renewables green power through the grid, solar panels and possibly even carbon offsets.
How can it be incorporated into Property Management?
There are many actions that can be taken by property managers to engage with both commercial and residential tenants regarding ESG.
Firstly, the tenant handbook could include explanations on the importance of managing ESG issues and propose and suggest ideas for how to improve performance.
Secondly, the lease agreement or tenancy agreement can include amended terms or an attached schedule, to cover provisions that encourage the investor, tenant or both, to carry out their roles in a sustainable way. The details of the provisions and the means of encouraging sustainable behaviour are negotiated between the parties, but typically relate to:
- an intention to cooperate and minimise negative ESG issues and maximise positive issues;
- sharing data and installation of energy and water submetering;
- commitment that ESG factors will be considered when using contractors e.g. cleaners, builders, facilities management.
During the pandemic, we have seen the impact of having a non-flexible lease or one that does not factor in ESG issues for commercial landlords. Due to lockdowns and forced remote working, offices have been empty, while electricity, lighting, heating and water have continued to be provided and kept on, as the leases stipulate hours of service delivery. There needs to be a change in the thought process with flexibility built in for future leases to minimise and reduce this energy wastage.
ESG is an important topic. If you want to discuss how ESG could impact you as a property developer, investor, tenant or landlord, we would be delighted to assist.
Call direct on + 44 (0) 207 993 4081 or simply send an email for a fast response.
