Time to turn targets into reality

One of the objectives of the European Union’s taxonomy is to divide investment products into those that can and cannot be considered “green” in the context of potential transactions

The classification system is based on the findings of the EU Technical Expert Group on Sustainable Finance, which previously set only partially quantifiable standards. As well as the regulatory hurdles imposed by Brussels, the property sector is also facing the challenges of high inflation and rising energy and interest costs this year. Given all this, it is now important for companies to work out how to position themselves and the strategies they need to succeed against all these odds.

ESG is the way forward

One thing is clear when you look at all the factors affecting companies’ financial performance: despite the macroeconomic and geopolitical challenges, sustainability is still the top priority – even more so than in previous years, in fact. The various real estate sector players have recognised that they cannot simply make net zero commitments – they also need to document and demonstrate how they are turning these into reality. The focus will also shift to investment in decarbonising their property portfolios. Revitalising and repurposing buildings has to be considered here. This is where ESG strategies come in. A thorough environmental, social and corporate governance policy is no longer a “nice-to-have”, it’s a “must-have”, as regulatory authorities, investors and current and future employees are all calling for more effective and sustainable use of properties. Financially, too, a clear ESG approach also helps to assess risks better and, in turn, potentially improve financing and insurance conditions. Looking around the market, five ESG trends become apparent that should be considered when identifying the right strategy.

Climate targets and green infrastructure

2023 will be a year in which property owners need to be even more conscientious about future greenhouse gas targets, both self-imposed ones and those set by external bodies. This also means that the pressure will pick up, probably from various sides – from investors, who will take an even closer look at their portfolio managers’ carbon footprint, as well as from tenants, users and society as a whole. It is no longer simply the case that we can meet targets – what’s important is taking effective measures to reduce harmful emissions. As well as carbon neutrality, this also affects profitability: the demand for net zero buildings is higher than ever as they now generate record rents, with users increasingly looking for premises that reflect their sustainability obligations.

The popularity of solar panels and charging points for electric vehicles has already picked up and the demand is expected to remain high in 2023. The rising demand for sustainable infrastructure is being driven by multiple factors, including the falling costs of solar panels and EV charging technology as well as the growing popularity of electric vehicles among consumers generally. Financing instruments, such as grants and subsidies, also create incentives. It’s clear that having solar panels on site and ways of charging electric vehicles are good tools in the decarbonisation process that, in different ways, can help to reduce Scope 1, 2 and 3 emissions.

Higher demand for ESG professionals

Investing in suitable skilled workers has always been an essential building block in a company’s success. In terms of the relevance of ESG strategies, the demand for ESG experts is higher than ever and shows no signs of slowing down. This is creating tough competition for experts in the field who can help companies integrate sustainability approaches in their business processes. Given this, it will be essential to compare the employee profile required with business and corporate objectives and to find out whether there are already talented people hiding at the company who can be promoted. Yet it should be noted that no single person can be an expert in all aspects of ESG, as it covers a wide range of topics, and so it is sensible to build a team with different skills.

Operating costs and data as a basis

As I mentioned earlier, the property sector is also facing considerable economic headwinds. These include rising electricity prices, the financial cost of complying with legal requirements and skyrocketing capital costs. In the light of these factors, property companies will likely have to pay more attention to managing operating costs again. After all, reducing operating costs helps to improve financial performance, competitiveness and sustainability. Optimising operating costs essentially pushes up income and results in net operating income that boosts the value of the property and can help increase returns. As a result, the property’s market position as a whole improves significantly.

Measures to improve sustainability performance must never be considered in isolation – they go hand in hand with digital solutions. This means that they have to be based on data. The key aspects here include having accurate, complete and up-to-date data. Precise energy data ensure that the progress made in achieving energy and CO2 targets can be measured, while also meeting the requirements of annual reporting and benchmarking. In turn, data can encourage smarter investment decisions to be made about renewable energies on the ground and other energy services with added value, allowing their effects to be quantified and the long-term benefits to be fully taken advantage of.

As well as cost saving, the major advantage of addressing these trends in a company’s own ESG strategy is that it provides a detailed analysis of the company’s strengths and weaknesses when it comes to carbon neutrality. This will be even more relevant to stakeholders in the future and offers the opportunity to make a valuable contribution and attract investment. The advantages of a sophisticated ESG strategy thus pay dividends over time in terms of the company’s own results and profit.

About Westbridge Advisory / Argentus / Agradblue

Westbridge Advisory is one of Europe’s leading sustainability service providers for the real estate industry. Based in Frankfurt am Main, the company acts as a one-stop shop in the field of ESG and energy efficiency consulting. Its merger with sustainability experts Argentus will create the first provider with 170 specialists who have the capacities, the range of services and the know-how to provide comprehensive advice to the entire real estate sector by 2023.