Adios, greenwashing – it’s high time to get down to the real ESG work
Responsibility & accountability
Given the unmistakable conclusions drawn by major studies and surveys in recent years, you don’t have to be a fortune teller to make the following prediction: sustainability is the issue that will shape the future of the real estate industry. The simple and undeniable fact that more than a third of global CO2 emissions come from buildings, combined with commitments from governments around the world to mitigate climate change, creates an equation that compels the real estate industry to accept its responsibility. Those who do not switch to a sustainable business model with sustainable products and services in time – and the clock is already at one minute to twelve – will face the consequences sooner or later. Brands that aspire to long-term success in the competitive real estate market have no choice but to take sustainability seriously.
ESG: from 0 to 100
It is also important for real estate companies to recognise that sustainability measures are inextricably linked with social and corporate governance factors. Of course, ESG is the word on everyone’s lips. But we are not talking about a term that has become fashionable overnight, we are talking about something tangible, something measurable. In Europe, for instance, the high-profile members of the ECORE – ESG Circle of Real Estate initiative have already worked with numerous industry associations to develop a transparent, comparable and measurable system to rate the sustainability of real estate. In addition to ESG criteria, the scoring system also maps the taxonomy of the Paris Climate Agreement and the European Green Deal. Based on an easy-to-understand percentage score from 0 to 100, the new system allows stakeholders to determine the extent to which a property or portfolio satisfies climate targets and ESG criteria. This increases the competitive pressure on the industry protagonists many times over in one fell swoop.
The days of greenwashing are over
The ramifications of a scoring system that creates across-the-board transparency for stakeholders and clearly depicts precisely where properties and portfolios are on the pathway to carbon neutrality are enormous. In the not too distant future, investors, banks and insurance companies will be able to compare and classify the sustainability of every real estate product as part of their investment and lending approval procedures. More importantly, they won’t just be using national metrics. Let’s be under no illusions here: it is impossible to overstate the consequences of measuring the performance of properties and portfolios against international benchmarks. Which leads us to two obvious conclusions: Firstly, this development will promote collaboration between real estate companies. After all, delivering effective sustainability gains across the entire industry will require a strategic sustainability network of ESG solution partners on the one hand – property, facility and asset managers, together with investors and developers – and banks, insurance companies and industry associations on the other. Secondly, specific, measurable and comparable criteria will become the basis for sustainability benchmarks throughout the industry. Simply claiming to be sustainable will no longer be enough. Companies will actually have to prove it – and the proof will have to be presented as verifiable figures. This is a game-changer for real estate companies. The time for trying to put a positive spin on half-baked ideas is over. In this new age, companies will need high-quality, accurate, complete and auditable data that provide clear and precise information about their actual ESG performance. The days of greenwashing are over.
Creating awareness for change
At the European Real Estate Brand Institute, one of the things we are working for is to create and raise awareness of the far-reaching changes the real estate industry will soon be grappling with – including the implementation of corporate ESG strategies. In spring 2020, for example, we launched our first joint research project with the Gesellschaft für Immobilienwirtschaftliche Forschung e.V. (gif) to assess the status of ESG strategy implementation across the European real estate industry and, at the same time, to measure the importance of sustainability in positioning a real estate brand. The results were striking. On the one hand, 92 per cent of the industry professionals we surveyed believed that ESG issues will become even more important over the next few years. On the other hand, only 27 per cent of corporate managers said that their companies had already defined clear ESG criteria. As we analysed the data, it was clear that people know ESG is important, but weren’t very sure what to do next. Reason enough for us to launch a second study (together with gif and Biberach University of Applied Sciences, HBC).
Special ESG study with added brand value
The aim of our special ESG study is to identify relevant influencing factors and offer perspectives for the future of the real estate industry. With this in mind, we evaluated the influencing factors (strategic ESG goals, value/shareholder value concepts, drivers, etc.) in the various sub-sectors, and applied the insights we gained to the positioning of corporate brands to develop a corporate development and brand management guideline for CEOs and CMOs. Above all, one thing is clear: The approaches companies adopt to ESG, both internally and externally, will play a large part in determining their future position in the market and the development of their corporate brands in the competitive environment. A credible ESG image, one that is reflected in the brand, will soon be a prerequisite for gaining access to the capital markets. Incidentally, here is some interesting information from the Forum Nachhaltige Geldanlagen (FNG), the industry association promoting sustainable investment in Germany, Austria and Switzerland. FNG defines sustainable investments as investment processes that take the influence of ESG criteria into account in their financial analyses. According to FNG’s most recent market overview, sustainable investments totalled EUR 219 billion in Germany in 2019. For Austria and Switzerland, the latest figures relate to 2018: EUR 21.8 billion in Austria and EUR 233 billion in Switzerland. In all three countries, the figures are rising. According to FNG, the market for sustainable and responsible investments is now growing faster than ever before. A quote from the study concludes: “As a result of the transparency requirements imposed on asset managers and asset owners, ESG integration is becoming a substantive driver of the further qualitative development of the sustainable investment market”.
Sustainability as a key performance indicator
Given the importance of ESG, we have also decided to focus on ESG in our Real Estate Brand Value Study 2021 by measuring “sustainability” as a Key Performance Indicator. After all, real estate companies are not only interested in implementing sustainability measures and developing the sustainability aspects of their brands, they also want to understand how these activities are perceived by the market. They recognise that the best self-image in the world is no good to anyone if it does not align with external perceptions.
So, 2021 is all set to be a very exciting year. We will see disruption and a realignment of some very basic market fundamentals. The futures of many real estate brands are at stake. At the REB Institute, we will be keeping a very close eye on, analysing and evaluating every development and every transformative process. And with our special ESG study and our latest annual Real Estate Brand Value Study, we hope to provide companies with invaluable support as they strive to optimise their market positioning and brand management strategies.
With this in mind – continue to nurture your most import asset: Your brand.
With branded regards
Your Harald Steiner