If you ask around in the real estate industry, one topic seems unavoidable: ESG. ESG stands for “environmental, social and governance”.
The topic of sustainability has thus finally arrived in the real estate sector, which is not least due to the changing circumstances. The main drivers include new legal regulations as well as a growing awareness of the relevance of the topic, which is creating an additional economic pressure on providers.
But what exactly are the challenges facing the real estate industry and how can it solve them?
Sustainability is increasingly mandatory
Sustainability is no longer a matter of goodwill among real estate giants, but is largely due to the German government’s climate protection plan adopted in 2016.
The goal: greenhouse gas neutrality by 2050 at the latest, an extremely ambitious plan in view of the fact that, according to the Federal Environment Agency, the operation of buildings is currently responsible for a good 30% of all greenhouse gas emissions in Germany.
In order for this so-called “decarbonization” to succeed, a reduction in the energy requirements of buildings by 50 percent of the level in 1990 is planned.
Concrete measures have already been decided and are being implemented bit by bit. From 2021, for example, a lowest-energy building standard will apply to new buildings. Further measures that aim towards a nearly climate-neutral standard for new buildings are still being worked on.
In addition to regularization, the government is also planning incentives for the construction of buildings that create more energy than they consume. This would make it possible to feed surpluses from certain buildings into the power and heating grid within networked real estate structures. This, in turn, could compensate for properties that function less efficiently.
The challenge of old buildings
The fact that real estate accounts for such a large share of local greenhouse gas emissions is, among other factors, due to the age of many buildings. Fact is that only about one percent of buildings are new. As many as 85 percent of all properties in the EU were built before 2001.
While all sustainability-relevant aspects can be taken into account from the outset when building a new structure, subsequent changes to an existing building are often less easy to implement.
Nevertheless, renovation of existing buildings is one of the decisive factors in achieving the ambitious climate targets, especially since the majority of old buildings will still be with us in 2045.
When it comes to refurbishing existing buildings, the focus is primarily on two aspects: the increased use of renewable energies and special energy efficiency measures. Among other things, a pro-rata obligation to use renewable energies is currently being discussed.
ESG is also increasingly important for investors
It is not only the legislators who are threatening property owners and managers with trouble. The EU regulation on sustainability-related disclosure requirements in the financial services sector, the “SFDR” for “Sustainable Finance Disclosure Regulation”, is an example of this. Since 2021, it has been helping investors to make decisions with regard to ESG objectives with the aid of a classification system.
The basis for this is a catalog of criteria defined by the EU. This significantly increased level of transparency is tempting more and more real estate investors to focus on more environmentally friendly properties, which is exerting enormous additional pressure on the industry to adapt.
Digitization as an additional way out
While much of the climate effort will be on the back of old building renovations, property owners should not lose sight of digitization and digital transformation. They offer additional opportunities for saving greenhouse emissions while also increasing the efficiency of processes.
A pleasant side effect is that the companies themselves also save time and costs, creating a win-win situation. In view of this, it hardly seems surprising that more and more disruptive startups and business ideas are emerging under the name Prop-Tech, which are aimed at a complete structural change in the real estate industry, including its traditional business models.
Part of this development is, among other things, the move towards completely paperless companies. In the real estate sector in particular, this is as challenging as it is rewarding, since most business transactions here are governed by contracts.
With the help of modern eSignature solutions, however, the paper form can be replaced in all cases by a completely digital workflow that is also fully legally compliant. The legal framework and the available solutions already exist; now it is up to the real estate industry to take advantage of what is on offer.