ESG measures are becoming a focal point of business strategy for most organisations. This change is being driven, among other things, by the growing ESG awareness among stakeholders, the evolving legal environment, investor pressure and risk assessment in securing financing, in addition to the need for cost optimisation. EuropaProperty interviewed several leading real estate developers, investors and service providers to get their feedback and comments on the growing ESG agenda.
Europa Property Q&A – Olivier Lebrun, Portfolio & ESG Manager, Blackbrook
In what way is your sector affected by ESG?
Today, an ESG plan or program is an absolute requirement for companies on all sides – investors, lenders, tenants – to ensure sustainably optimised business practices. Fortunately, companies are starting to recognise the long-term cost savings that a highly efficient building can bring, and so we now find ourselves in a position where becoming more sustainable is both the right thing to do and there are clear tangible (and intangible) benefits from doing it.
If you were to look back at the industry ten years ago, very few buildings would have had an ESG certification. Now it is starting to become a dealbreaker, and it would be uncommon to see a new building not targeting a top certification during the development process. Looking ahead to the next ten years, ESG data will be even more critical for firms making decisions about their assets’ performance, and ratings and certifications will become a central criterion for decision-making by investors and tenants alike, as well as the implementation of green leases as standard practice.
What do you do as a company to comply with ESG? Do you have any best practices?
At Blackbrook, our entire thesis is on investing in future-proof supply chain infrastructure, and to achieve this, it’s vital that we are meeting the latest ESG requirements, anticipate future trends, and improve existing assets to meet these criteria.
Our ESG strategy has been in place from inception as we have always been conscious of how big an impact the real estate sector has on the environment, and how easily so much can be done to improve it. ESG best practices start at the beginning of the underwriting and due diligence process, assessing all aspects be it the building, the tenant or how the asset fits in the local community.
Not only do we seek to provide the market with the highest quality ESG optimised assets with our new developments, but we also actively engage ESG audits on all our existing assets to identify ways to improve them to reduce energy consumption, increase green energy usage, and meet the latest ESG criteria and expectations. This is an ongoing process that we provide for free to our tenants.
As committed long-term investors, we have the capital to invest in improvements in our assets that our tenants may require. It’s very much a long-term partnership for mutual benefit.
What advantages and challenges do you face in implementing ESG initiatives?
Logistics facilities, particularly those with automation, use a significant amount of energy, and so there is an enormous opportunity to make a real difference through sustainable improvements. With large land parcels and roofs for PV, industrial assets are unique in what is realistically possible, even making them operate on a truly carbon-neutral basis.
For us, many of our tenants occupy multiple facilities spanning across Europe which means that they can take the learnings and the ESG improvements that we’ve made collectively on one asset, and apply this to the rest of their portfolio, helping them to drive efficiencies and more easily meet their sustainability targets.
One of the main challenges we face is getting the tenants to quickly engage with green initiatives. Dealing with larger organisations often means dealing with a larger pool of decision-makers which often makes it harder to reach a consensus on which solutions to implement. Tenants usually have the right intentions and would like to make the improvements, but the delays in getting them signed off mean it is taking longer for them to realise the benefits.
The benefit of renewable energy such as solar is that once installed an asset begins saving energy immediately, but price volatility around the key materials needed to install these assets highlight how crucial it is to make quick decisions as the economics of a project can change drastically on a short timescale.
How does the use of digital tools improve your journey regarding ESG?
Understanding how much energy is consumed by an asset is essential for helping the sector meet ever-rising ESG reporting standards, and we have long understood the value of using dynamic technology to measure and assess how our assets are being managed. It can also clearly show the impact of any improvements that are made.
We’ve been focused on implementing green leases on our assets where possible which requires the provision of data on energy, water usage, recycling waste etc. To facilitate this, we leverage retrofit planning software to calculate anticipated consumption levels and identify which approaches will have the optimal impact in the long term. The quality, timeliness, and reliability of the data it provides allow us as investors and other key stakeholders to understand the true energy footprint of assets across our entire portfolio.