Sustainability and the real estate sector
The global real estate sector is responsible for almost 40% of global energy-related carbon emissions. With governments increasingly focussing on how to build more sustainable economies (including through regulation) and ESG standards strengthening globally, the real estate industry’s contribution to sustainability is crucial.
ESG issues are high on the agenda for investors, funders, developers and occupiers, as the sector seeks to meet its sustainability targets.
Investors are increasingly considering ESG in making decisions across the property life cycle, from due diligence and acquisitions through to leasing and asset management.
Sustainable properties preserve their asset value, secure higher rents and incur lower operating and maintenance costs than properties with poor environmental performance. Without investing in sustainable improvements, owners may face the risk of holding “stranded assets” (buildings which do not meet current and/or future ESG standards may be difficult to refinance or sell).
Green leases allow landlords and tenants to collaborate on monitoring and driving environmental performance as landlords look to ‘future proof’ their investments and tenants require space which aligns with their ESG objectives. Our real estate team regularly advises both landlords and tenants on green leases with a range of ESG commitments to be undertaken by both parties. These commitments may include the improvement of energy efficiency, the management of waste and utilities, the implementation of sustainable alterations and the establishing of forums to manage the environmental targets for a building or an estate.
Lenders are also placing ESG considerations at the forefront of their lending decisions and pricing of risk. The cheaper cost of capital through the issue of green bonds and attracting other investors looking to invest in ESG compliant funds/platforms, and managing risk (preventing lending against “stranded assets”), are just two reasons. The Loan Market Association’s Sustainability Linked Loan Principles and the Green Loan Principles now provide frameworks for lenders and borrowers to structure loans (e.g. use of proceeds and project evaluation). Our finance team advises both lenders and borrowers on loan structures to meet their specific decarbonisation, sustainability or net-zero goals.
Industry stakeholders must also comply with a rapidly changing regulatory and reporting environment. There are increasing numbers of industry standards and many jurisdictions are introducing mandatory disclosure requirements that will impact on the real estate sector such as the EU’s Non-Financial Reporting Directive. Planning and zoning requirements are also increasingly focused, not just on sustainability and habitat protection, but on biodiversity enhancement.
Our integrated real estate, finance, construction and regulatory teams offer premium advice on all stages of the sustainable property life cycle, from planning, financing and construction to leasing and operations.
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