- Over 50 per cent cite costs as the biggest hurdle to implementing ESG measures
- For around two-thirds, attractiveness to investors and financiers is the biggest advantage of ESG; loss of asset value is the biggest concern
- 87 per cent focus primarily on environmental aspects
European real estate companies see ESG as highly relevant to their investment strategy and are well-resourced for it. This is the result of a study conducted by Drooms, the leading provider of digital platforms for real estate assets in Europe, during April 2023. The company surveyed around 160 real estate experts in Europe for this latest study. The whole report can be found here.
83 per cent of the real estate professionals surveyed plan to give greater consideration to ESG in their investment strategy in the coming year, and 70 per cent of the respondents already have a dedicated individual responsible for ESG. In day-to-day business, however, ESG does not yet influence decision-making as much as one would expect: On average, the companies surveyed see the influence at 6.95 points on a scale of one to ten.
Lack of regulation and high documentation burden on companies
In addition to cost, which is the biggest barrier to implementing ESG measures for more than half of respondents, the lack of regulation (47 per cent) and the complexity and additional documentation burden (44 per cent) are key inhibitors. Other deterrents are a lack of understanding of how ESG compliance is achieved (44 per cent) and a lack of EU-wide regulation and standards (40 per cent).
“The documentation process is one of the big hurdles to implementing ESG measures. Companies therefore often perceive ESG as a burden rather than an opportunity. Interestingly, many companies are also concerned by the lack of regulation. They lack implementation and legal certainty for their ESG strategy. This sometimes culminates in a wait-and-see attitude: to avoid getting it wrong, you’d rather not do it,” explains Petter Made, SVP Product & Development at Drooms. “Digital data room solutions can help manage the complexity of ESG requirements – not only by keeping documentation organised for reporting purposes but also for the implementation of new regulations and for easier comparison of different assets within a portfolio. Unfortunately, this potential is not yet fully exploited.”
Complex documentation process
Unquestionably, many of the respondents have high hopes for technological solutions such as data management platforms for storing and analysing relevant ESG data. On a scale of one to ten, they answered with an average of 7.42 to the question of how strongly they expect such solutions to play a crucial role for investors in the future. However, many respondents still rarely use the possibilities of such tools: 60 percent of them store the data for the documentation process on their own server, 36 percent use a cloud, and just 24 per cent use a data room thus far.
“In the documentation and due diligence process, the real estate industry can become much more efficient. The documentation process takes up an incredible amount of time because documents and data have to be partly digitised, partly searched for, and different versions have to be compared with each other and made accessible to the various stakeholders. Yet it has long been possible to file documents centrally and always keep them up to date and make them accessible to all stakeholders without having to spend months preparing them,” Made explains.
For about 20 per cent of the respondents, the documentation process takes more than six months, for 20 per cent it takes four to five months and for 47 per cent it takes two to three months.
Attractiveness to investors and financiers as the greatest advantage
The respondents see the greatest advantage of ESG for real estate in the financial area. For almost 65 per cent of respondents, greater attractiveness to investors and financiers is one of the biggest advantages, while increasing the value of their own assets is interesting for 60 per cent. Reducing operating costs (39 per cent) and higher rent (27 per cent), on the other hand, are attributed less relevance. But reducing emissions and the associated climate protection are also among the most important factors for around 64 per cent, as is taking responsibility (39 per cent).
ESG – the E remains the primary focus
The focus of the real estate experts surveyed continues to be on the ecological aspect of real estate.
87 per cent stated that they pay attention to ecological factors in their investment strategy. Social aspects (30 per cent) and governance criteria (25 per cent) followed far behind. Overall, the ESG compliance of assets is a decisive factor for the respondents. 54 per cent would be very unlikely to invest in a non-ESG compliant property. 93 per cent would rather invest additional money in the ESG compliance of their assets than sell them at a potential loss. Overall, loss of value is the biggest concern with regard to ESG regulations (64 per cent). Twenty per cent are concerned about potential long-term negative marketing consequences and nine per cent about potential penalties.
“ESG issues are at the top of the agenda in the real estate industry and are here to stay. However, we make it incredibly difficult for ourselves to implement. Highly paid professionals get hung up on document management instead of focusing on creating smart solutions for meeting ESG requirements,” says Made. “Digitalisation is not a panacea, but it can help to simplify communication with stakeholders and the regulator. Quite simply, by making all the necessary information available at all times.”