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ESG – Hottest topic on the Real Estate agenda | 2024

Sustainability for Real Estate portfolios is arguably a long, ongoing and unresolved debate. Precise guidelines and timelines remain elusive.

This is not surprising. After all, Corporate Social Responsibility (CSR) policies have been so subjective with property owners and managers arguing that regulation can’t keep apace. The result? ESG (Environmental, Social and Governance) conveniently shifted lower on agendas.

A shift change will soon change this status quo in the European Union (EU). New laws and regulations from the EU – also translated into local legislation – set high standards reporting and making buildings more sustainable. Failure to comply with these requirements can result in significant fines.

This is also already having an impact on project financing since the requirement for banks to comply to ESG/ CSR Directive (CSRD) reporting.

It’s crucial Property Owners and Managers put this at the top of their priority lists for 2024. The deadline for the inventory and renovation of all commercial buildings, including healthcare facilities is 31 December 2025.

We share this sense of urgency is with the Real Estate sector. In this series of articles on ESG Deerns takes you, as a as a property owner or manager, step by step through which measures are coming first and what you need to work on today. We also provide you with a concrete timeline.

Who are the new ESG rules relevant to?

The laws and regulations cover both existing buildings and new construction, in particular public buildings, commercial real estate, industrial buildings and large apartment complexes.

The responsibility for making buildings more sustainable according to ESG legislation can vary, but generally lies with the owner of the building. Why? The owner ultimately has the decision-making power over major investments and changes to the building, including sustainability initiatives.

Property managers also plays an important role since they are responsible for the day-to-day management and maintenance of the building and are obliged to report on this. Through close cooperation between these two parties, sustainability goals can be met quickly and efficiently.

New legislation in European Union is also relevant outside the EU since European real estate players need to map the supply chain. Consequently, a manufacturer from Brazil will soon have to report its emissions in order to continue supplying its material to European companies.

Imminent timelines

The EU aims to significantly accelerate the energy transition in Europe. The European Commission therefore drew up Energy Performance Requirements For Buildings III (EPBD III which has already has been translated into local legislation for buildings in the EU. European

In the meantime the EPBD IV is on its way. This states, among other things, that new construction must be completely emission-free from 2030 and that we must start reporting our actual CO2 emissions and energy consumption from 2024. Building owners must also take targeted actions to improve the energy performance of existing buildings. The Carbon Risk Real Estate Monitor pathways (CCREM) indicate the upper limit for commercial sectors in terms of energy consumption and CO2 emissions.

The ESG/CSRD criteria serve as a framework for assessing the sustainability performance of the real estate sector. These are drawn up on the basis of the UN’s 17 Sustainable Development Goals and comprise 3 principles: sustainability, social responsibility and good governance.

In order to give the Real Estate sector time to execute necessary actions, legislation in EU member states is expected to become concrete in H1 2024, and informed on the EU Taxonomy, the EU SFDR, CSR-D.

Here’s the EU Sustainable Buildings Timeline as a reference as you start your ESG journey. 

Read timeline here

Deerns offers this timeline for executing sustainable solutions in buildings as the start of a roadmap for property owners and managers to determine which compliance your site assets need to meet – whether this be by providing information, research or an EED audit.

What does this mean for property owners & managers?

2025, 2027, and 2030 may seem a long way off, but it takes time and effort to meet these requirements. After all, you can’t go from energy label G to F or map out your actual consumption within a day.

If you your ESG performance is still in the starting blocks, or if have just started your ESG journey, we strongly recommend that you put this as a top priority on the agenda for 2024.

What are your risks? Real estate companies risk sanctions such as fines from the local authorities as well as higher interest rates on loans. Worse yet, you may find yourself in a stranded assets scenario, where your buildings no longer meet market expectations and you can expect financial depreciation.

On the upside, the new regulations also offer opportunities for real estate companies, such as reducing energy costs, promoting the health and well-being of tenants and employees, and increasing the value of buildings.

By continuously measuring and reporting on your energy consumption, you get an accurate insight into the total energy consumption. This makes it easier to see what you need to change in the building to save energy – and therefore costs – and thus also reduce your CO2 footprint. This way you contribute to the planet and your own wallet.

As a property owner or manager, you have two options

  1. take action and take advantage of the situation
  2. lag behind and face the consequences.

Two immediate starting points as a property owner, manager or company to comply with ESG legislation?

  1. Carefully study the sustainability timeline
  2. Identify the deadlines that apply to you

The outcome? A clear picture of what you can work towards in the coming years.

How Deerns can help

Since the new legislation and associated criteria are extensive and complex, Deerns offers support to comply with these new regulations. Aside from years of expertise in ESG we have in-depth technical knowledge of buildings and are a recognized provider of Carbon Risk Real Estate Monitoring (CRREM) services.

We establish your degree of compliance with the ESG requirements. Then we map a plan to meet the new requirements. The final step is to show you how to integrate this into your ESG reporting.

Your benefit? You limit the costs of the transition and maximize its benefits.

This is the first in a series of articles in which we’ll guide you step-by-step through the process of becoming ESG compliant.

Let’s talk

Naomi Duivesteijn - Global

Smart Building Advisor