ESG for Real Estate in the Netherlands
20. May 2022 | Drooms Global
The real estate industry is responsible for around 40% of all CO2 emissions worldwide. It’s a sector that can contribute a great deal to sustainable development. In the Netherlands, ESG for real estate is growing in importance.
Environmental, social and governance (ESG) issues are becoming a central part of how businesses operate in many sectors. Europe has committed to the goal of becoming a climate-neutral continent by 2050. The real estate sector must be part of the solution to achieve these goals.
While ESG implementation might have been viewed through the lens of cumbersome paperwork and red tape in the past, the truth is different. Businesses are starting to realise the benefit of ESG. KPMG’s 2020 research highlighted how 54% of investors look to include ESG in their portfolio strategy. More importantly, 31% of respondents said they already have ESG as part of their strategy.
The Netherlands and its ESG landscape
The current situation in the Netherlands circles around the common goals set by the European Union member states. Carbon neutrality and a reduction in GHG emissions are among the top climate targets. The Netherlands is part of the EU’s ESG framework, including initiatives and regulations such as:
• The European Green Deal
• EU Taxonomy Regulation
• The European Disclosure Regulation
There are also many local initiatives and regulatory frameworks that the real estate sector must be aware of. The National Climate Agreement (Klimaatakkoord) sets ambitious climate targets. The Dutch government is moving towards a subsidy scheme (SDE++) focusing on promoting technologies that help avoid CO2 production. Previously, the focus has often been on increasing and promoting renewable energy instead.
The Netherlands Authority for Consumers and Markets (ACM) is currently increasing opportunities for businesses to collaborate on climate objectives. They are also enforcing strict rules to prevent businesses from advertising with misleading sustainability claims. It’s also worth noting that large public and limited liability companies need to have a plan for the supervisory board, the management board and the junior management. The plan must be provided to the Socio-Economic Council (Sociaal Economische Raad). These can include things like having a set number of women on board.
The Dutch ESG landscape has also focused on the financial side. Dutch banks have required borrowers to comply with sustainability standards for a while. When they do, they can benefit from specific incentives, such as margin decreases. The loans require the borrower to comply with unique ESG standards and reporting systems. However, there are no agreed best practices. Each type of loan can impose individual sustainability requirements.
ESG goals are also affecting homeowners and the private real estate sector. In the Netherlands, the government uses a range of subsidies and energy-saving measures to incentivise homeowners in the private sector. The Dutch mortgage sector, with its green and sustainable funds, is particularly influential in determining the types of new homes that are built, or the changes people might want to make at home. The National Climate Agreement, for instance, means that by 2050, around 7 million existing residences and 1 million buildings will stop using natural gas. 1.5 million homes will upgrade away from natural gas by 2030.
Changes in the pipeline
The above is an overview of ESG in the real estate sector in the Netherlands. But there are numerous plans to enhance the regulatory landscape. In the most immediate future, office buildings in the country need to have a minimum energy label C. These requirements are set to tighten in the coming years. Agreed future changes in the country include:
• All office buildings must have an energy label A from January 1st, 2030
• All office buildings must be carbon neutral from January 1st, 2050
• A CO2 reduction of 95% is to be achieved by 2050
There is also a lot of private-sector effort on the way. A group of pension funds has launched a network to accelerate ESG in real estate in 2021. The Global Real Estate Engagement Network hopes to share knowledge and improve best practices. Since loans don’t currently have universal frameworks, ventures such as this could help streamline compliance.
How Drooms can help
ESG regulation can burden real estate investors and developers in controlling the vast amount of data involved. As the landscape in the Netherlands has shown, there are many reporting requirements. The Dutch market also shows current problems. For example, many properties still lack the required labels and sustainability records. According to research, 12% of Dutch office buildings had an energy label D or lower in 2021. Furthermore, 46% didn’t even have an energy label. Getting properties compliant in time requires effort.
Much of the compliance is also increasing digitisation in the real estate industry. Professional implementation of ESG guidelines, along with data analysis, to unlock the benefits of ESG, requires focused data management. A central and reliable source of information for the ESG data will be essential. Drooms can act as a single source, enabling compliance during the lifecycle of real estate assets. Whether it is during the holding or selling phase, you can provide transparent and reliable information to all stakeholders.
By setting up a system to monitor and control ESG-related data, you don’t just ensure compliance. You can also ensure you benefit from it. You simplify the system of ESG management and make the most of obtaining sustainability goals.