Sustainable finance and net zero: Why investors cannot afford to be left behind

Now is the time for businesses of all shapes and sizes to step up and take action to decarbonise their real estate assets, writes BRE Group’s James Fisher.

The value case for sustainability has more or less completely flipped in the past few years. With COP26 fast approaching and the summit taking place on UK soil for the first time, there is finally a growing awareness that integrating environmental, social and governance (ESG) criteria into business decisions can no longer be dismissed as ‘just another added cost’. It is now essential for business resilience in the long-term – particularly in the real estate market.

BRE (Building Research Establishment) has championed sustainability measures for the built environment for over 30 years now. However, until recently, the suggestions for action that I had been making to investors in my role as international key account manager for the real estate sector were often met with reticence. This is despite the fact that the built environment is responsible for 40 per cent of carbon emissions in the UK, a stark reminder of the need for everyone in real estate to do what they can to reduce the impact of their buildings.

Whilst it won’t have come as a surprise to anyone, the Intergovernmental Panel on Climate Change’s (IPCC) latest report has underlined the near-term, existential threat that rising CO2 emissions will have on a global scale. In recent years, corporations and governments alike have faced mounting pressure to pledge ambitious net zero targets in an attempt to curb these emissions – and many have done so. These commitments are very welcome but will need to be backed up with evidence of discrete and practical measures to drive change.

Meeting our net zero ambitions depends on more than just government pledges. Businesses have a vital role and investors need to make a compelling case for sustainable finance. In late 2020, the Harvard Business Review published a report which concluded: ‘Investors are increasingly asking… not whether a company has good intentions, but whether it has the strategic vision and capabilities to achieve and maintain strong ESG performance.’ This clearly highlights that when businesses consider the social and environmental impact of their investments, they yield greater value down the line – both from a financial and environmental standpoint.

In the world of real estate, sustainability certifications can help investors achieve exactly this. However, it has becoming increasingly clear to me in recent years that many don’t understand the full range of benefits that achieving certification can deliver. Ultimately, they enable investors to determine and drive sustainable improvements in the operational performance of the buildings in their portfolio, by providing a holistic assessment framework through which to assess the social, environmental, and economic sustainability performance of their assets. You need to know where you’ve started from to understand how much progress you’ve made, and certification can be the start and end point for this.

To give an example, CTP Invest is a European property development and investment company which runs logistics parks across central Europe and has adopted BREEAM – a sustainability certification scheme – which was used to drive green bonds for investment, raising a total of €4bn. CTP Invest used BREEAM In-Use as a lever to raise the investment grade of its business and subsequently launched on the Dutch stock market. The decision to actively evaluate and improve parks within CTP’s portfolio played an important part in enhancing the company’s value and allowing its business to flourish, reinforcing the benefits of sustainability certification schemes. More broadly, we know that buildings which can show that they have the highest levels of sustainability performance can drive higher rental yields, minimise voids and drive client satisfaction.

At BRE, we have a responsibility to inform the property market of how to better take ESG considerations into account, not only so they too can contribute to the global decarbonisation drive, but so that they can take advantage of its benefits. If investors fail to act, they risk falling victim to compliance failures, a depreciation of assets, negative public opinion, and an eventual and significant loss of income later down the line.

The challenges may be daunting but the solutions are already available. Both the industry and government have a responsibility to encourage the take up of sustainability schemes which will get us to net zero. The real estate sector is taking a real lead in this space, but now we need the corporations and businesses of all sizes to do the same. Now is the time for businesses to step up and take action to decarbonise their assets. Failure to do so will see them left behind in the UK’s decarbonisation push. The UK has an exciting opportunity to reset its economy along a sustainable development pathway, from which we will all benefit.

James Fisher is international key account manager for real estate at building science research centre BRE Group.

This piece was first published on Business Green