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02 May 2021

ESG Real Estate Insights 2021

ESG moved to the top of the agenda in the real estate industry

Undoubtedly, ESG and sustainable investing are on top of the agenda of the financial industry. The impact on real estate players is significant and multi-faceted, and ranges from regulatory and tax topics to strategic planning and operational decisions. A year ago, some of these aspects were still “music of the future”, whilst the pandemic has certainly accelerated developments and the need to act.

Impact that matters - Focus on Sustainability

 

ESG has taken a key role in organization’s strategies and daily operations. To remain successful, ESG factors have to be incorporated in strategic decision taking, transformation, reporting and assurance. We at Deloitte will accompany you through the sustainability journey and highlight any aspects which have an impact, today and in the future – and with a focus on real estate.

Our new article series „ESG Real Estate Insights” has been specifically developed to shed light on key ESG topics relevant to real estate players.

With contributions from Deloitte member firms in Austria, Central Europe, France, Germany and Luxembourg, connected to a worldwide network of real estate and sustainability experts, our annual article series aims at providing a diversified view.

#1 Sustainable Finance Disclosure Regulation (SFDR) in the Real Estate Industry

 

Discover the key steps and challenges for real estate asset managers to comply with the SFDR by March 10, 2021.
 

With buildings being responsible for approximately 40% of energy consumption and 36% of CO2 emissions in the EU, the relevance of SFDR to the real estate sector is indisputable.

Regulators, investors, stakeholders and the public in general are increasingly holding businesses accountable for sustainable practices. The growing relevance of sustainability issues is also driven by recent legislative developments which reflect the urgency to mitigate environmental risks related to climate change

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#2 European Green Deal

 

What’s in there for real estate companies?
 

The European Green Deal aims at meeting the goals of the Paris Agreement to make the EU carbon neutral by 2050. Part of the Green Deal are various carbon initiatives – of which one of them is the improvement of the energy efficiency of all buildings. And important for real estate companies, one of the flagship programs of the Green Deal is building renovation.

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#3 Real Estate Investment Management in the light of ESG

 

How to navigate through the ESG jungle to define and implement a future-proof organization

Over the past years, the relevance of real estate funds with an ESG-focus has increased. While some players managed to establish themselves successfully as sustainable Real Estate Investment Managers (REIMs), others only did little to prepare their organizations for this shift

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#4 Deriving business value from tax governance as part of the ESG strategy

 

When governance models are reviewed by real estate players to achieve their ESG goals, it also integrates an important tax dimension – tax transparency – which requires the production of data on tax governance and a control framework and which is in many cases not yet available. Real estate players have an opportunity to increase the value of their portfolio and their brand by taking pre-emptive actions to set up a tax governance as part of their overall ESG strategy.

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#5 ESG data management in the real estate industry

 

ESG challenges are becoming a higher priority for businesses across the real estate sector, making data management more important than ever. Achieving a single data model and defining the key metrics for ESG are issues real estate players can no longer afford to ignore.

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#6 RE-thinking Due Diligence - ESG impact on M&A

 

ESG challenges are becoming a higher priority for businesses across the real estate sector, making data management more important than ever. Achieving a single data model and defining the key metrics for ESG are issues real estate players can no longer afford to ignore.

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#7 ESG as real estate value driver

 

Recently, environmental and social issues have become a public and political priority, and as such, of material value for investors. An informed and regular approach to identification and management of ESG impacts shall protect investment portfolios and not only enhance resilience and guard against the risk of accelerated obsolescence and value erosion – and will also provide better financing conditions within a larger pool of new, more responsible capital, attracted to the industry to make a positive ESG impact.

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#8 ESG criteria in real estate

 

Don’t forget “S” and “G” – A holistic approach to ESG

Environmental, social, and governance (ESG) considerations have become increasingly important across the real estate sector. Yet, awareness regarding the three ESG aspects seems to differ across “E”, “S”, and “G”. Since buildings are considered as one of the key factors in climate protection, unsurprisingly, there is often greater emphasis on the “E”. Social as well as governance elements tend to receive less attention in the public debate. However, it turns out that both “S” and “G” are also of particular relevance for real estate companies.

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#9 Green Leases - In the ESG context

 

In the institutional real estate market, green buildings and certificates for green buildings, such as LEED, DGNB, BREEAM, ÖGNI, are already market standard. Due to the already visible impact of the climate change and the ESG regulations enacted by the EU Commission, also the green operation of a building and green leases gain increasing importance. This raises the question of what specific provision can be regulated in such “green leases”.

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#10 Decarbonization of real estate

 

It’s time for action

Energy use in buildings for lighting, heating or cooling leads to direct or indirect CO2 emissions. Building materials also carry embodied carbon resulting from their mining, processing, manufacturing, transportation and installation. With carbon embedded in nearly every phase of building construction and operation companies have to start with their decarbonization program to be able to contribute to Europe’s ambitious goal of 2050 climate neutrality efforts.

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Our thinking

ESG as real estate value driver

Recently, environmental and social issues have become a public and political priority, and as such, of material value for investors.
Research

ESG criteria in real estate

Buildings are considered as one of the key factors in climate protection, unsurprisingly, there is often greater emphasis on the “E”. Social and governance elements tend to receive less attention. However, it turns out that both “S” and “G” are also of particular relevance for real estate companies.
Research

RE-thinking Due Diligence – ESG impact on M&A

Evidence is mounting that business performance is impacted by environmental, social and governance factors and recent developments demonstrate that the speed at which those elements become material is increasing.
Research

Green Leases

In the institutional real estate market, green buildings and certificates for green buildings, such as LEED, DGNB, BREEAM, ÖGNI, are already market standard.
Research
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