Growing numbers of property developers are starting to understand the importance of ESG in real estate.
In this post, we will explore what ESG means for real estate, while outlining some steps property developers can take to improve their practices.
What is ESG?
ESG stands for “environmental, social, and governance”. Think of ESG as a framework for conducting business as ethically and sustainably as possible. If a business commits to ESG, it means they are committing to adopting best practice in each of these three pillars:
- Environmental – Taking stock of your businesses carbon footprint, and taking steps to increase energy efficiency and reduce waste.
- Social – A focus on the human impact of your operations. This means looking after your people, and for anyone who interacts with your business, whether they are customers or other members of the public.
- Governance – Assessing how your business is run internally, with a focus on factors such as regulatory compliance, executive pay, tax, financing, and more.
Why ESG matters for real estate
The environmental pillar should be of particular concern for property developers. According to UKGBC, the real estate industry contributes to 42% of the UK’s total carbon emissions. Plus, a recent report found that 70% of UK commercial real estate stock falls below EPC rating B, and over 50% of UK homes fall below EPC rating C.
The government’s energy efficiency bill has set certain targets regarding EPC ratings. By as early as 2030, properties will need to meet certain minimum energy efficiency standards before they can be legally listed or sold on the real estate market.
This creates a pressing business case for property developers to commit to ESG. With such stringent regulations in place, the future of the UK real estate industry depends on it.
How to improve your ESG as a property developer
ESG is not a box-ticking exercise, and it is not the sort of thing you can do once and then forget about. It will require an ongoing commitment to achieving best practice in each of the three pillars.
In this post, we have focused on the environmental pillar of ESG. This is because the looming deadlines for minimum energy efficiency standards likely mean that most property developers will be particularly concerned about working towards economic sustainability.
It will not be easy. One study estimated that upgrading the UK rental housing stock to meet the minimum efficiency standards could cost around £18 billion. The cost of upgrading commercial stock could be even higher.
How to begin your ESG journey to best practice
There are a number of ways property developers could work to achieve best practice in ESG:
- Do not underestimate the importance of “quick wins”. Investing in advanced heat pumps for your entire property portfolio may be prohibitively expensive. But choosing energy-efficient lighting is not.
- Conduct an audit of your own internal operations. Identify any key areas of improvement, and make them the foundation of a new set of policies and procedures focused on ESG.
- Learn how to measure your performance on each of the ESG pillars. Invest in training wherever necessary to ensure that individuals across your business understand the part they need to play in reaching your goals.
Work with other organisations that share your commitment to ESG
James Hallam is an independent Lloyd’s broker with access to a hand-picked selection of A-rated insurance providers. We share your commitment to ESG, and we will support you in any way we can to help you achieve best practices across your property development business.
For example, running thorough risk assessments, and ensuring you have adequate insurance cover in place to protect your assets, is a core component of the governance pillar of ESG. We specialise in helping real estate businesses meet all of their insurance needs at the best possible price.