The Topline
"ESG considerations are increasingly a priority for businesses in the real estate space. But what, in practical terms, does that mean for investors, developers, landlords and occupiers?"
– Paul Dinning, Director, Infrastructure & Energy
ESG and UK real estate: What is "ESG"?
"ESG" stands for "Environmental", "Social" and "Governance". Although the concept appears broad and somewhat nebulous, ESG represents a framework by which businesses can assess their legal and regulatory compliance, whilst embedding cultural sustainability and responsibility in their ethos, operations and reputation.
What are the key aspects of ESG for UK real estate businesses?
The three pillars of ESG can largely be interpreted as follows:
(E)nvironmental
This pillar involves assessing the environmental impact of a business' activities, which incorporates factors such as emissions, pollution, water consumption and waste. Key focuses include the energy efficiency and emissions of buildings and the sustainability of construction operations and supply chains.
(S)ocial
This pillar involves looking at human capital and diversity and inclusion; employee, occupier, customer and visitor wellbeing and social opportunities; as well as potential human rights risks across supply chains. In real estate terms, it's a consideration of a project's or building's impact on the people involved in bringing it to fruition and to society.
(G)overnance
This pillar is concerned with the way a business governs itself, and incorporates factors such as conduct, regulatory compliance, responsible financing and investment, and fair taxing and executive pay.
Why is ESG so important?
Recent years have seen an unmistakable cultural shift towards a global community with an increasing social and environmental conscience. Thomson Reuters has deemed the emergence of ESG discussion "from fad to essential business".
At the same time, the built environment is reportedly responsible for a significant proportion of global greenhouse gas emissions. (The latest figures and analysis from the World Green Building Council and Architecture 2030 report that buildings are currently responsible for around 39-42% of global carbon emissions, with building operations responsible for some 27-28% and materials and construction responsible for around 11-15%.)
Knight Frank reported, in mid-2023, that the majority of UK real estate stock is 'brown', with 70% of commercial stock below the proposed 2030 minimum EPC rating B and more than half of UK homes below the potential 2035 minimum EPC rating C.
As a result, 'green' stock is attracting rental and sales attention and the UK real estate industry is facing increased scrutiny and legislation changes, all of which is motivating investors, owners and occupiers to consider the impact of their buildings on the environment and community.
From heightened governmental focus on ESG, to rapidly increasing demands for stronger ESG performance from prospective investors, developers, landlords and occupiers; national and international laws, regulations, policies, politics and wide-ranging commercial pressures all impose both tangible and intangible requirements on businesses to get their ESG approach right.
There's no doubt that properly addressing their ESG agenda is vital to the survival and growth of UK property businesses.
ESG and UK real estate: How we can support you
A key risk for any UK property business is portfolio depreciation through lack of futureproofing and marketability.
Keeping abreast of sustainability and tech-led solutions, weighing-up refurbishment and redevelopment options against taking new, green stock, undertaking effective environmental corporate reporting and ensuring compliance with legal and regulatory developments, can all help to counter that risk.
Here at Walker Morris, we understand the significant challenges that come with making your real estate ESG goals a reality. Our specialist lawyers are experienced in all aspects of the ESG agenda, and work with businesses at every step of their journey.
Our extensive, multi-disciplinary expertise across areas such as Real Estate, Infrastructure & Energy, Commercial, Regulatory & Compliance, Employment & Immigration and more, can help your business to thrive through embedding ESG principles in your contractual arrangements, operational processes and corporate culture.
Non-exhaustively, Walker Morris can assist with the following practical steps to help create, implement and deliver an effective ESG strategy for your real estate business:
- Undertaking audits, contract reviews and drafrting ESG-focused policies and procedures.
- Horizon scanning to keep you informed and updated on ESG-related developments.
- Providing tailored training.
- Carrying out ESG due diligence.
- Helping you obtain green finance or investments based on ESG criteria.
- Delivering low carbon, sustainability and other green projects.
- Helping you measure and report energy, carbon and climate risks.
- Providing comprehensive, cross-disciplinary advice and transactional assistance.
- Providing risk management and dispute resolution strategies if/when ESG queries or concerns arise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.