CRE and ESG
The built environment is responsible for close to 40% of greenhouse gas emissions.
The CRE industry is making a big effort to reduce this, some of it mandatory, some of it voluntary. More and more parties (Lessors and Lessees) are making a contribution towards a more sustainable and ethical built environment.
The mandatory side of things has been growing over many years including new mandatory sustainability reporting starting from January this year. This is making parties commit, and over time a growing number will be required to do so as reporting levels change. That is dealing with the matter from the top down.
But what about the bottom up – the voluntary side? Commitment tends to be lower, as people are less likely to act without a clear requirement. However, at a certain point, people get incentivised to act. It’s about the investment – time, cost and people – and the return.
From a Lessee’s perspective, according to a recent Deloitte report, 70% of Gen Z and Millennial respondents consider a company’s environmental policies when job hunting. Additionally, 48% are placing pressure on their current employers to act on sustainability and take tangible steps to improve. If Lessees don’t do something about ESG, there will be less choice of potential future staff. That’s a good incentive to act.
For the Lessors, national vacancy remains high, take up of space is less than before covid, and commercial terms remain very competitive. The pool of “improved” buildings is growing so tenants are no longer compelled to lease lesser grade space like they did in the past. Things have changed and now there is choice. If Lessors don’t do something about ESG, there will be less choice of potential future tenants. That’s also a good incentive to act.
Of course, In economically uncertain times it is much harder. From the Australian Financial Review (AFR) ESG Summit this week… “Sandon Capital’s Gabriel Radzyminski says it’s inflation’s fault; the crowd got excited about ESG when money was cheap or free and investment hurdles were on the floor, only to be smacked in the face when interest rates jumped.”
The great thing about ESG is that it is not dead; just like the office. It’s just not as noisy as it was. Be it mandatory, or voluntary, the overall level of commitment is still increasing and that is the main thing.
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