OVER THE LAST months, ESG (Environment, Social and Governance), SRI (Socially Responsible Investment) or Impact Investing moved from buzz words to concrete products strategy bringing clear values and competitive advantages for the financial players investing in them. It is now publically recognized that making profit is compatible with sustainable growth, while evidences show a positive correlation between ESG consideration and financial performance.
When thinking about the future of any business or industry, it is inevitable to consider sustainability–and the real estate sector is a key actor with an important role to play in sustainable development over the coming years.
Deloitte: How does FREO Group see the link between real estate and sustainability?
Sven Andersen: We fully recognise that the real estate sector is responsible for high consumption of energy and other resources and that we have a role to play in helping the industry mitigate its environmental and social impact. We also believe that by being proactive towards sustainable real estate investments and having an asset management strategy, we can make a big impact.
Deloitte: Over the coming years, major changes are expected in the way that people live. One trend is the move to urban areas. Some projections and studies show that by 2050, it is expected that roughly 70 percent of the population will live in cities.2 How is real estate preparing for these possible changes?
Sven Andersen: Our view at FREO is that real estate is being transformed fundamentally by several key trends: adapting to new working patterns, environmentally friendly ‘buildings’ and through technology and innovation, more services can be offered to tenants to improve well-being. Our aim will be to help clients take these changes into account in their investments.
Deloitte: A major trend seems to be a shift in the population toward a sustainable and green lifestyle. Do you see a corresponding change in your clients’ perceptions? And are concerns about sustainability consistent with financial interests?
Sven Andersen: We are seeing a shift in mindset. Developers now see green buildings as a way of creating value. We are finding that investors increasingly demand ‘green labels’–and in our experience this appears to be paying off financially for all parties involved. All of this is just the start of a long-term sustainability commitment. The next challenge for the real estate industry is to ensure that green building practices are self-sustaining. It’s not just a temporary trend, but it is here to stay. A critical factor is to have a business environment that values green spaces and the people who create them.
Deloitte: We understand that there is a demand and market for more sustainable investment in real estate. However, what can be done to convert this demand into active measures?
Sven Andersen: An excellent example of sustainable investment from our portfolio is the concept 2226–a new building concept developed in Switzerland. To achieve net zero energy performance and excellent energy efficiency, brand 2226 buildings include industry-leading technologies and solutions such as water treatment and recycling, grey water use for toilet flush, electricity for the public areas from rooftop solar panels public areas, and creating roof areas with flowers and plants for tenants to relax or use as co-working space.
Deloitte: What are the advantages of sustainability in buildings from the occupant’s perspective?
Sven Andersen: We can point out two aspects from the value of green buildings for our buildings’ occupants. First, people who work in buildings care about things that affect their health. If employers capitalize on this, they can make large business savings. Product and service providers that can prove benefits in these areas can increase market share. Secondly, we have seen that people are satisfied by things they notice. Which is why managers and owners should communicate and engage with people working in their buildings to point out and capitalize on green efforts. In short, it appears that green building occupants tend to report higher productivity and health benefits.
Deloitte: Can you name some obstacles to sustainable real estate?
Sven Andersen: First, there is a question of what’s the best approach to sustainable building. New Environmental Social and Governance (ESG)– related products and technologies are available now in relative abundance, and it is difficult to choose between all these innovative solutions, determine their impact, and validate their benefits. And when it comes to implementation, many goals may be set without internal knowledge about how to proceed or a view of the financial implications. The progress achieved is also hard to measure, as most of the benefits are inherently more qualitative than quantitative in nature. And perhaps most fundamentally, existing calculations of investment return and the whole thinking around ‘what constitutes a good investment’ do not take energy efficiency into account. In particular, the established investment analysis methodology does not provide any insights on ‘why’ energy is consumed. Overcoming this narrow financial thinking around real estate investments calls for a cultural shift–and as we know, this can be very difficult to achieve.