The evolution of ESG within UK commercial real estate

Jess Pilz, Associate Director, ESG, UK  Originally posted in the FT, May 2021: https://www.ftadviser.com/investments/2021/05/17/we-shouldn-t-make-excuses-for-delaying-action-on-esg/

There was a time when I believed that ESG issues may never be given the focus they deserved. For a good decade, a small corner of the UK real estate industry fought valiantly for its seat at the table. Despite our efforts, ESG never received the same attention as other investment drivers and was instead associated with phrases like ‘tick-box exercise’ or ‘nice-to-have’. I must admit that prior to heading off on maternity leave in early 2017, I felt relieved to step away from the constant battle; despite the hint of change that lay ahead.

When I returned from an extended maternity leave in early 2020, I saw a significant shift in how ESG was perceived by the UK real estate market. I think this fundamental shift in attitude stems from a combination of factors, including the climate warnings issued by noteworthy organisations like the Intergovernmental Panel on Climate Change (IPCC), the ambitions set out by the Paris Agreement, the introduction of new regulation by the UK Government and the EU, investor pressure, occupier demands and even the global pandemic, which has brought the importance of health and wellbeing starkly into focus.

This change in attitude within the real estate sector has forced many to revaluate how they integrate and treat ESG within their organisation and it’s been a welcome change to see many new names sit alongside the leaders who have been pioneering this space for the last decade – though credit must be given to those leaders, as well as to those loyal individuals and organisations, who so diligently drove forward the ESG agenda, despite opposition, to ensure we got to where we are today.

Despite the acceptance of ESG, I think there are still things we need to be careful of and areas that need improvement. If we are to see real change, I don’t believe ESG should be used as a competitive advantage. While this may have been the case initially, investors now understand the value of ESG and expect the integration of such issues within all areas of investment decision making, regardless of any perceived green premium. The consideration of ESG factors sits alongside all other investment drivers and property owners and asset managers should use their success in this space to drive and influence change. The operation of the built environment accounts for 30% of the UK’s emissions, so it’s imperative that we work together as an industry to reduce these levels.

Secondly, whilst there has been an evident shift in attitude, there is still a way to go in terms of education. Many of the growing pains associated with ESG, such as collecting tenant utility data, are still significant challenges today. Deciding to embrace ESG does not take these challenges away and those who are just starting now will have some way to go if they want to catch up to the leaders. There is also no room for greenwashing anymore. In addition to SFDR and the EU taxonomy, investors are increasingly scrutinising a manager’s commitment to ESG. The next season in ESG will truly set apart those who are integrating ESG into every facet of their investment processes.

Lastly, we shouldn’t make excuses for not taking action. Relatively new concepts which are still being defined and evolved, like net zero carbon, need to be considered. We may not have the perfect or most consistent framework for addressing net zero carbon, but that shouldn’t stop anyone from taking the steps needed to understand what this looks like for their assets and portfolios. There are sufficient, and highly valuable frameworks that already exist and have been researched and evolved at length by credible organisations, such as the UK GBC. If we stand still and wait for everyone’s definition of net zero carbon to be exactly the same, we may never solve the climate crisis. There is enough out there to help us take action.

I’ve had the pleasure of working at Fiera Real Estate for a year now and have had the privilege of seeing attitudes in the real estate sector change substantially in that time. We have spent the last year building a rapidly evolving ESG strategy across our investment and development funds. The most rewarding part of it has been to work with a global senior management team who are passionate about making a change and who are committed to expanding their knowledge in order to make the decisions that are needed. Real change comes from fully embracing ESG at the top. The road to get to where we are may have been bumpy, and it’s clear that it’s not a smooth road ahead. But, ESG is here to stay – and it’s about time.

Fiera Real Estate ESG Report 2020 – Fiera Real Estate