A sustainable point of view

Discussion about ESG in the real estate sector should start from narrowing down this very broad category. It comprises a vast number of elements, including, for instance, the circular economy, addressing social inequalities, and the protection of the environment and natural resources. In real estate, the scope of activities is somewhat limited, but it is vital for the efforts aimed at achieving climate neutrality. This is because buildings have a measurable effect on the environment and their occupants. According to Eurostat, the construction industry accounts for – indirectly or directly (and mainly during occupation of buildings) – app. 40 pct of all energy produced. Moreover, it generates more than 0.8 bln tonnes of waste, i.e. 36 pct of all waste per year. This is why it is so important to understand ESG in real estate, which I define as a set of procedures, measures and rules that are to be the basis for the proper and long-term functioning of the building in a way that reduces its adverse impact on the environment and the building’s occupants.

Several years of delivering goals for our commercial real estate clients have shown that ESG awareness has grown considerably. This is confirmed by CBRE’s ‘European Investor Intentions Survey 2023’, which shows that 81 pct of the investors will be taking ESG criteria into consideration in their decisions in spite of the economic downturn and difficult geopolitical situation.

From short-term benefits to multi-annual strategies

The currently prevailing trend in ESG in real estate is to streamline the building’s functioning, specifically in environmental terms. This includes reducing the consumption of utilities, for instance, by installing tap aerators, automatic equipment shut-down systems, and adequate equipment operation schedules programmed by using BMS. Larger investments, involving the replacement of lighting fixtures or new building systems, are also being made. It should be remembered, however, that goals related to real estate should be long-term. For most of the efforts, the year 2050 is the reference point, since by that time buildings in Europe will be required to have achieved climate neutrality. From this perspective, current operational measures to reduce consumption of utilities are important but have their limitations. At some moment in time, we will reach a point where further streamlining will no longer be possible. That critical moment will concern the comfort of the property’s occupants. After all, ESG is not only environmental (E) but also social (S) governance. Therefore, streamlining will end where any further efforts might adversely affect the comfort of use of the space by its occupants.

The advantage of long-term strategies also consists in having the building’s entire life cycle covered. It is worth bearing in mind that more than 90 pct of currently existing buildings will still be in use in 2050, when climate neutrality needs to be achieved. Real estate’s longevity results from the fact that the initial costs – both financial and environmental – are high, and thus the goal is to incur such costs as rarely as possible. In addition to this, cities have been so intensely developed to date that there is no space for new buildings in the best and most attractive locations.

Since real estate is a long-term product, a long-term streamlining strategy is the best solution. Especially if such a strategy is based on investment and streamlining assumptions that take into account structural changes in the region or even the entire country. Without these assumptions, the property will not achieve climate neutrality over the longer term. Moreover, for clients who have long-term strategies in place, spreading the streamlining efforts over several years are seen as more reliable and resilient and less opportunistic.

Systemic tools and efforts

To go beyond short-term streamlining and operating efforts in terms of ESG, systemic solutions are necessary. These are still under development, but we can offer a few examples of well-functioning products. One example is the Carbon Risk Real Estate Monitor (CRREM), which defines decarbonisation paths for commercial and residential real estate sectors to manage the transformation risk and achieve the Paris Agreement’s goals. To put it simply, this tool shows in a simplified manner the energy efficiency of the property, taking into account its location (each European country has different parameters embedded in this tool).

There are also solutions showing the property’s results over time. These can be used to collect reliable and accurate data on the building, e.g. the failures that occur and electricity consumption levels. This provides both crucial information and a long-term outlook on the efforts to be taken, whether in the investment area or when it comes to streamlining.

GRESB, a rating organisation that uses its own set of indicators measuring a property’s compliance with ESG guidelines, is also worth mentioning. These indicators are subject to annual evaluation and provide the systemised information needed by investors to assess the value of their properties based on their compliance with ESG requirements.

Key challenges for Poland

Companies in Poland looking to start implementing ESG strategies need to think carefully about the challenges we are facing, perform a self-examination, start collecting data about the property, and then plan a reasonable course of action. From the outset, it is worth focusing on what can be done instantly, but ultimately a long-term strategy has to be developed, with renewable energy sources guaranteeing the building’s self-sufficiency being a vital component of that strategy. Such efforts are already being undertaken in Poland. Warehouses are the most well-prepared for this, because the way they are built allows for the installation of PV panels on the roofs. Most companies, however, need to seek other solutions. A solar farm is one example. Ghelamco has opted to build these, and has completed the construction of its first three solar farms. The power thus generated will be used to supply the Warsaw Unit office tower on Rondo Daszyńskiego in Warsaw.

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About CBRE Group

The Fortune 500 and S&P 500 company headquartered in Los Angeles is the world’s largest consultancy company providing commercial real estate and investment services (based on 2019 revenues). The company has more than 100,000 employees (excluding those of affiliates and associates) serving investors and real estate tenants via more than 530 offices worldwide. CBRE offers a diverse range of integrated services: strategic consulting on investment and rental, corporate services, property and project management services; company administration, development services, mortgage banking, appraisals, investment management services, as well as consultancy and analysis services.