A Sustainable Future in Real Estate – Trends in ESG PropTech
If the COVID 19 pandemic showed us one thing, the world is much more connected on a massive scale than we ever thought. Local actions have global consequences. Tail risks are not as remote as we thought. Our world is much more fragile than we used to believe. Because of the ongoing global pandemic, actions to combat climate change are now temporarily halted to second place, although we already experience its negative impact regularly.
With the real estate infrastructure being responsible for about 38 percent of the global greenhouse emissions and amid global temperatures increasing by 1.5 degrees by 2030, it is not very surprising that the stakeholders of that industry have woken up to the importance of ESG in their daily work. There's a massive movement towards ESG-driven thinking in the industry:
ESG stands for Environmental, Social, and Governance and describes an approach to measuring any subject's impact on a broader societal scope.
Investors
Long-term investors such as pension funds have a 30-plus year perspective on their investments. If we don't take care of our planet, this will harm their investments as climate change will significantly damage the global economy. And when these large investors focus on a particular problem, real estate owners and operators have a strong incentive to do so as well.
Tenants and Residents
Environmental and climate-conscious thinking is part of the Zeitgeist; it is part of the daily life of consumers. Tenants and residents want to be in a building that is certified as carbon neutral. Corporate tenants need the carbon reporting for their ESG reporting, being punished by the capital markets if their ratings are bad.
Governments and Legislation
More and more governments establish incentive schemes for owners and operators to improve ESG measures. With goals of becoming carbon neutral at a particular time (in Europe 2050), public funding is directly linked to those goals making it nearly impossible to access those funds without a strong ESG strategy.
Focusing on sustainability was an altruistic hobby ten years ago. Today's market pressure pushes real estate owners and operators to take sustainability seriously.
The Path of ESG excellence
Measure
The first step to ESG excellence is to monitor and report carbon waste and energy usage. Today, the data sources for assessing the current carbon performance are disconnected and often non-digital, making it hard to create a clear high-level view of the current status. If a real estate owner or operator wants to change something, you first need to understand and measure what is happening.
Plan
Once you have measured the actual performance, it's time to do something. But before any actions, multiple scenarios need to be calculated and compared. There's no single proper solution to become more carbon-efficient, and there is no single technology that will solve all problems. For large asset managers and investors, this complexity is multiplied by the size of their portfolios. Calculating the best output combined with the best economical approach is critical.
Action
With promising scenarios at hand, technology implemented into buildings can help to improve the carbon footprint. This segment is commonly described as (ESG) PropTech. We find various technologies, services, and solutions to enhance carbon-emission performance for new and existing buildings within the segment. The solutions vary from small (single room) to large (building). Yet, to improve the performance of the whole building, all solutions, no matter if small or large, need to be integrated and allow holistic monitoring to measure the actual effect of the actions taken.
Integrate
The carbon performance of a building is not bound to bricks and stones. A building is always part of a local ecosystem containing the infrastructure around the building and its tenants and residents. If you want to understand the carbon footprint created by your building, you need to look at factors like usage or how people reach your building. You also need to look into things like mobility services, space usage, or other integrated services and optimize on those levels for real positive impact.