Challenges in implementing ESG in real estate
On Wednesday, 19th of June 2024, Drooms hosted an insightful webinar titled “Rethinking ESG in Real Estate: What works? What to avoid?”. This session brought together industry experts to discuss the evolving landscape of ESG in real estate, focusing on what’s currently working, what’s not, and how the real estate industry can navigate these changes and challenges effectively. Our host Luke Buckingham, Business Development Manager at Drooms, was joined by:
- Johanna Fuchs-Boenisch, Chief Executive Officer at susteco solutions GmbH
- Brigit Gerritse, Head of Research & Strategy at REDEVCO B.V.
- Lutz Kandzia, Head of Unit ESG at Hanse Merkur Grundvermögen
- Pia Maria Goossens, Director Business Development at Drooms
Understanding the current ESG landscape in real estate
The experts began the discussion on the status quo of ESG in real estate. “The positive thing is there is a high activity and creativity regarding ESG topics. From construction, regulation, documentation, software, and everything else, we have never seen such high activity before.” This shift is driven by growing regulatory requirements, investor demands, and the recognition of long-term value creation through sustainable practices.
Despite this positive momentum, the industry faces challenges such as economic and political crises that can create setbacks. Additionally, many companies struggle with confusing regulations, cross-border differences, and the question of how to finance necessary technical investments. “I think there is a perception in the market that there are only obligations, rather than looking at the potential savings long-term,” Johanna added.
Measuring ESG performance in real estate
When it comes to measuring ESG performance, companies in the real estate industry rely on various benchmarks and methods. For instance, BREEAM, GRESB, and CRREM are commonly used, with targets like achieving Zero Carbon by 2040, like REDEVCO B.V. has set itself. These benchmarks help companies track their progress and ensure they are meeting their sustainability goals effectively.
Johanna mentioned that “measuring the actual ESG impact in real estate seems to be a challenge for many, and understandably so. However, I also believe there are some ‘perceived hurdles’ that can actually be tackled.”
“Everybody is talking about ‘ESG ratings’, but there is no standard. This is a big obstacle today, which I personally cannot understand. There can be hundreds and hundreds of ratings, but a certain set should be agreed across the industry so we can compare the data,” Lutz added.
Effective ESG measures in real estate
The panel discussed some of the most effective ESG measures in real estate implemented in their companies. Setting up a comprehensive ESG strategy and incorporating renewable energy sources in common spaces were highlighted as significant steps. Additionally, building management technology plays a crucial role in advancing ESG goals by making operations more efficient and sustainable.
Pia mentioned that “many haven’t yet dealt with the low hanging fruit. Yes, there is a lot to be done, but simple measures that can be implemented easily shouldn’t be ignored.” Johanna couldn’t agree more: “Picking the low hanging fruit and just getting started is so tremendously important. The confusion shouldn’t stop anyone from starting.”
Before moving on, we asked our audience on what the most effective ESG measure in real estate implemented in their companies have been. 44% agreed that shifting to 100% renewable energy sources was their most effective measure.
Top challenges in implementing ESG in real estate
Implementing meaningful ESG progress is not without its hurdles. One major challenge is the perceived trade-off between profitability and sustainability. “I wholeheartedly reject the idea that ESG has to be financed through an ROI and there can’t be a world where we invest in the performance of our buildings. In the same way as you invest in the maintenance of your building, ESG should be something that you naturally invest in,” added Johanna.
There is a need to shift this mindset and recognise that both can be achieved simultaneously. “Lack of mindset is unfortunately a hurdle. As humans we have a problem with changing our behaviour, and this is a big challenge for progress,” Lutz added. “It’s only an excuse to say regulations are not clear. Sustainability goals should be very clear”, added Pia.
Collecting the right data, preparing it meaningfully, and sharing it synergistically are daily challenges faced by investors. Johanna shared her view on this hurdle: “Lack of data goes hand in hand with the lack of digitalisation. The data is often there, just not in a format that can be used as a foundation to make decisions.”
ESG in real estate: The buzzword and beyond
ESG has been called the industry’s overused buzzword by many. The idea of turning ESG on its head by reprioritising its elements of E, S and G, was also explored by the speakers. Brigit mentioned “I’m not sure it’s about the order, as they all go hand-in-hand. Of course, E is in the focus, but the S needs more attention. When a building doesn’t have a social value, it won’t have a future.”
Pia believes that GES is the ideal order of looking at it: “If there is regulation, environmental measurements are undertaken and then stakeholder benefits follow.” For Johanna, the letter O, for ‘Opportunity’, is still missing: “I cannot stress this enough, it’s such a chance to look at your portfolios from an asset management perspective and increasing their value.”
All speakers agreed that while all three elements need to go hand in hand, there has been a stronger focus on environmental aspects in recent years, suggesting that future efforts might increasingly focus on social aspects. Brigit mentioned how due to the nature of the industry and the distanced relationship between owner and tenant, owners often believed the social aspect was up to the tenant. This is now changing.
Looking ahead with our audience
We asked our audience which ESG trend they hope to see develop in the industry in the next five years. The majority of our audience, 42% to be exact, wish for enhanced government support on ESG initiatives. Another popular choice with 37% was the adoption of a circular economy. Coming in third with 21%, our audience wishes for the expansion of ESG in sustainable finance.
Advice for getting started with ESG in real estate
To wrap up the session, the speakers provided advice for those yet to start preparing for ESG in real estate regulation. The general consensus was to start immediately, even with small steps. Setting clear goals, collecting necessary data, implementing green lease contracts, and focusing on low-hanging fruits were recommended. “Also don’t forget the opportunity that lies in digitalisation of data,” Johanna advised.
The importance of starting without waiting for perfect conditions was emphasised, along with the idea of embracing the future proactively and becoming a leading role model in ESG practices. If you would like to view the on-demand version, please click here.
The importance of starting without waiting for perfect conditions was emphasised, along with the idea of embracing the future proactively and becoming a leading role model in ESG in real estate practices. This commitment to sustainability doesn’t stop at asset management—it extends to every aspect of your operations.
In fact, adopting digital solutions like the Drooms Online Archive can significantly contribute to your company’s ESG goals. According to Informationsdienst Wissenschaft, around 866,000 property transactions took place in Germany in 2022. Assuming that at least two data carriers were used for each transaction, more than 1.5 million USB sticks could have been prevented from reaching landfill by switching to the Drooms Online Archive last year alone. Josephine Jakub, Senior Vice President, Global Marketing at Drooms, explains: “Physical data carriers such as USB sticks typically contain plastic and often contain environmentally harmful mercury. In addition to a welcome reduction in CO2 emissions, switching to the Drooms Online Archive to complete post-transaction processes creates significant savings of potentially 15 tonnes of electronic waste and environmentally harmful materials in Germany every year. And similar potential savings and reductions in CO2 emissions can also be enjoyed by other countries in the future.”
For more information on how Drooms can support your ESG initiatives in real estate and help make your company more sustainable, contact us today.
