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Men in Suits

ESG and Sustainability in Real Estate

Real estate has always been a hard-core and attractive investment option for investors. We all grew up on the idea that real estate and capitalism go hand in hand. Whenever a family member decided to purchase a house or a commercial establishment, the only consideration we could think of was what financial value it could fetch us. The idea of the building being eco-friendly never crossed our minds. However, it may not be the case anymore as sustainability is taking every possible industry within its realm. ESG, just like every other Industry, is also significant to Real Estate. It is materially considered in the boardroom as real estate happens to be a carbon-intensive sector. The internal management decisions are influenced by ESG because it is eye-catching for investors. And real estate investors are especially focussed on ESG. Sustainability today brings greater value to real estate assets and is the way forward. They are the new premium assets in town.

A lot of regulatory guidelines are also coming up to support this demand. For example, the Sustainability guidelines of the European Association for Investors in Non-Listed Real Estate Vehicles (“INREV”). The GRESB Real Estate Assessments have also garnered a lot of attention in the last few years. They basically gather information on how real estate funds and companies all over the world are performing on ESG metrics. The Bureau of Energy Efficiency in India has flagged the Energy Conservation Building Code for the construction of future commercial buildings, introduced a star rating for existing projects and facilitated technical assistance to help 100 companies achieve net zero building. It has also launched Eco Niwas Samhita for new residential buildings. The ‘smart city’ initiative by the Modi Government is also a step in this regard as it encourages the usage of technological and green solutions in the creation of infrastructure.

Urban space is full of tall residential and commercial buildings. If the carbon footprint of these buildings is reduced to a considerable extent, the carbon footprint of the entire city will drop significantly. And builders and investors have started to realize the impact that the real estate market could bring because the construction of more than 50% of the estimated building numbers by 2030 has not yet begun. It is a capital-intensive industry and if sustainability is incorporated, the return on investment is also faster. We can thus see a rise in the construction of green buildings. They make use of environment-friendly raw materials like green cement or opt for smart technological heating or ventilation or install solar panels on roofs to source electricity. Installation of LED lighting directly leads to lower utility bills as they consume less electricity. The industry is also exposed to a new concept, namely Zero Energy Buildings (ZEBs). It’s an ambitious target where energy in a building sourced from fossil fuels will be brought to nil. ZEBs adopt a two-step process. Firstly, it aims to minimize energy use as much as possible by opting EEMs (Energy Efficient Measures) and secondly, aims to use renewable resources to power the remaining energy needs. The real estate industry also dwells upon its impact on the community. Apart from the fact that it provides shelter which is a basic living need, it also houses accessible green energy and care centres to the local community.

Many countries like Singapore and Dubai are already enjoying the tags of ‘smart and sustainable cities’ because of their innovative green ideas and implementation. For instance, Dubai recycles most of its sewage water transforming it into irrigation water. It plans to set up a major solar park with the intention to change the sustainability game in the energy sector. Singapore too is a home for many such green ideas. It has developed the Lamppost project, which utilizes street lampposts to examine the changing environmental patterns. The City Square Mall in Singapore saves 50,000-kilowatt hours (Kwh) of electricity every year by using auto-lighting in parking and on escalators. Such examples have also inspired other countries to bring innovation and creativity to the table in the reality sustainability space.

A remarkable rise in green property certifications can be observed where the environmental performance of a building is judged. Trusted certifications like LEED (Leadership in Energy and Environmental Design), BREEAM (Building Research Establishment Environmental Assessment Method), and GRIHA (Green Rating for Integrated Habitat Assessment) have jumped on the popularity charts. Qualifying for such certifications can be greatly economical too. There exists evidence which suggests that tenants are willing to pay higher rents towards green properties and non-green properties are being sold at a discounted price. A LEED-certified office building in the US can fetch a 5.6% higher rent.

By creating spaces, where people wish to invest and live guilt-free, the integration of ESG into real estate can surely upgrade sustainability standards and be a game-changer. It can greatly aid nations to achieve their net-zero targets. In fact, given the mounting pressure on the real estate industry, it is more of a necessity than a choice. After all, the operational and embodied emissions arising from this industry account for close to 40% of global carbon emissions. It is not only the need of the hour but can also be extremely profitable, viable and rewarding.

You can learn much more about this interesting topic by joining our recognized Directors’ Institute- World Council of Directors and Directors’ Institute- ESG Expert Certification course.

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