ESG – has the circle of blame been broken?

Do you remember, I guess, more or less 15 years ago, when there was a circle of blame in real estate? When different stakeholders (developers, investors, tenants and policymakers) blamed each other for the lack of progress in adopting sustainable building practices? This highlighted the misalignment of incentives and responsibilities among these groups, creating barriers to the widespread implementation of sustainable buildings. Developers often claimed that there was no demand for sustainable buildings from investors and tenants, so they didn’t prioritise building them. Investors argued that they didn’t see enough demand from tenants for sustainable buildings, so they were reluctant to invest in them. Tenants might have felt that there weren’t enough sustainable buildings available or weren’t aware of the benefits, so they didn’t actively seek them out. The policymakers didn’t enforce stringent regulations nor provide sufficient incentives, believing that the market was not ready or willing to adopt sustainable practices. Breaking the circle of blame in real estate requires a collaborative approach, where stakeholders take responsibility and lead by example through proactive steps. Since the real estate sector took its first modest steps towards sustainability, our world has changed drastically. Did the sector succeed in breaking the circle? The financial crisis began in 2007 and reached its peak in 2008. It was triggered by the collapse of the housing bubble in the United States, leading to a severe global economic downturn. It was a manifest example of a non-sustainable business model. The crisis highlighted the vulnerabilities and risks within the global financial system. This led to a greater awareness of the need for sustainable and resilient economic practices. In response to the crisis, significant changes were made to the financial system, including a focus on sustainable finance, encouraging investment in socially and environmentally responsible projects. The crisis prompted investors to reconsider their strategies, leading to a growing interest in ESG criteria, partly driven by the realisation that sustainable investment could potentially offer more stable returns in the long term. While the crisis and the sustainability movement are distinct events, the aftermath of the crisis has certainly influenced the growth and direction of sustainable finance and investment practices. Even today we can see that financial criteria and long-term investment are the driving force behind sustainable projects.

Three main goals

Overall, the financial crisis acted as a catalyst for the objectives of the Paris Agreement, which played a significant role in advancing the ESG movement in Europe. The Paris Agreement to limit global warming has driven the European Union to introduce several regulatory measures to support the sustainability goals. The EU Green Deal, which has led to the development of several key regulatory frameworks, has 3 major goals: achieving climate neutrality by 2050, economic growth decoupled from resource use and ensuring that this transition is fair and inclusive for all regions. The legislation has heightened awareness among companies about the importance of improving their ESG performance. This has led to a greater emphasis on corporate responsibility and sustainable business practices.

So it is fair to say that the circle of blame has been broken. The question “Do we have to develop sustainable buildings?” is now no longer asked and has been replaced by a far more constructive one: “How can we realise sustainable projects in an affordable way?” And all the different stakeholders now have a positive and stimulating effect on the value chain of real estate.

Working together

Investors are allocating funds specifically for sustainable projects and require sustainability criteria in investment decisions. They work more closely with developers to understand the benefits and challenges of sustainable buildings. Developers are leading by example and are incorporating more and more sustainable practices in new buildings and renovations to demonstrate feasibility and benefits. They now highlight the long-term cost savings, health benefits and overall sustainability performance through certification, to attract tenants and investors. The tenants are aware of the benefits of sustainable buildings and actively seek out space to lease in sustainable buildings that help them to realise their ESG and overall business objectives. Tenants want to align their space choices with their ESG goals, promoting sustainability as part of their brand identity or to attract and retain their staff. Policymakers are enforcing stricter building codes and ESG standards that require sustainable practices for all stakeholders in the supply chain.

Breaking the circle of blame is a significant step forward, but it doesn’t guarantee that sustainability targets will be met. Much of the work remains to be done. Indeed, the actual implementation of sustainable practices can be complex. This includes upgrading infrastructure, embracing new technology and ensuring compliance with sustainability standards. Only a holistic approach that considers economic, environmental, social and governance aspects will lead to feasible solutions in practice. If any of these factors are not met, the approach adopted can hardly be considered sustainable.

The link between the financial and non-financial indicators is a fundamental part of the EU’s Corporate Sustainable Reporting Directive (CSRD). The link is made in the double materiality analysis where we map out both the impact of ESG-related risks and the opportunities for society as well as the financial impact for the company. Today, we have greater insight and many more tools for assessing the financial impact. Provided that the regulation is not merely applied as a mandatory reporting tool but is actually used to achieve strategic differentiation and growth, we now have a powerful tool to create higher shareholder value.

Changing that mind-set

However, many challenges remain. Long-standing habits and practices will have to give way to a cultural shift towards valuing and prioritising sustainability. Current technology might not be advanced enough to meet all sustainable targets. Inconsistent or insufficient regulations and policies could hinder progress. There might be a gap between the market demand and the supply of sustainable products and services.

Addressing these challenges requires ongoing collaboration, innovation and commitment from all stakeholders involved. In the real estate sector, this will mean a fundamental change in mindset. The value chain, which has traditionally been very compartmentalised and characterised by silo thinking, needs to evolve into a more cooperative and co-creative process-based system built on partnerships, as is the case in other industries.

Sustainability is a multifaceted challenge, but Bopro is committed to making it more manageable. With the opening of a new office in Poland, Bopro aims to bridge the gap between European reporting directives and practical, actionable solutions. This expansion underscores Bopro’s dedication to translating complex sustainability requirements into pragmatic strategies that businesses can implement effectively. By doing so, Bopro continues to support organisations in their journey towards a more sustainable future. Bopro was the Article Partner of Eurobuild CEE for this article

About Bopro

Bopro, established 40 years ago, is a provider of integrated real estate services from acquisition to construction, regeneration to renovation. Their sustainability experience goes back 15 years. It originated in the BREEAM-in-Use certification on the European continent. So far, they managed and audited more than 5 mln sqm. Their 90 experts are active in 16 European countries in sectors such as office, residential, logistics, lab, retail, distribution, production, hospitality, health care, culture and school. Bopro has offices in Brussels, Gent, Paris and Warsaw. They are members of the RICS, ULI, BREEAM and GRESB.