ESG the core issue for European real estate

European real estate companies are more focused than ever on ESG, but are feeling pressure from a difficult business environment. 

The latest Emerging Trends Europe report from the Urban Land Institute and PwC found that nine out of 10 survey respondents believed ESG issues would have the biggest impact on real estate by 2050.

However, interviews with investors, developers, managers and advisers indicated market participants were struggling to fulfil ESG compliance at a difficult time of high interest rates and construction costs, alongside other competing demands on their finances. “If you go into recession, ESG becomes a harder sell,” one global private investor said.

For the third year running, new energy infrastructure such as wind, solar PV and geothermal, was identified as the sector offering the greatest overall prospects for investment, development and rental growth.

The survey also found that ESG would be the number one driver of investment decision-making, followed by changing customer demands and demographic shifts. However, some investors complained that the regulatory environment forced a focus on box-ticking rather than concrete action.

 “Reputational upkeep plays a part, but it’s often less about greening your portfolio and more about meeting all the reporting requirements, which takes a lot of energy and time,” said one institutional investor.

The survey revealed that pressure from institutional investors (cited by 71%), lenders (67%) and occupiers (56%) would most likely accelerate the implementation of ESG measures.

Frustrated professionals are finding flaws, too, in present and incoming legislation, the report says. “EU taxonomy monitoring purely looks at energy consumed during building use, rather than primary energy used to construct a building. So, we’re missing the bigger picture,” an asset manager told the survey.