Guest editorial: Sustainability, ESG and climate change – where to next for real estate?

Citation

Warren-Myers, G. (2023), "Guest editorial: Sustainability, ESG and climate change – where to next for real estate?", Journal of Property Investment & Finance, Vol. 41 No. 4, pp. 349-350. https://doi.org/10.1108/JPIF-07-2023-207

In 2022, the UNEP released the Global Status Report for Buildings and Construction, with alarming results of the substantial contribution of the built environment to global CO₂, which are in the order of 37% globally. As a result, there is an increasing focus by governments and policymakers on the built environments' contribution to global emissions and the urgent need to reduce emissions. Property is seen as a key emission mitigation opportunity, and there is increasing government policy and industry action underway, particularly in the European Union and United Kingdom. Combined, both policy and regulation are generating substantial drive for action. However, market forces are also playing a key role in driving industry action, as investors seek greater clarity on environmental, social and governance (ESG) for investments, and banks and financiers require ESG criteria and information prior to lending. As such, the emphasis on operational emission profiles and reductions and ESG is fast becoming a key focus for investors, financiers, owners and occupiers. An acronym that appears to provide further explanation of “sustainability” is in itself quite an extensive list of criteria under each of the “E”, “S” and “G”, leaving further interpretation requirements to be explored and understood, which are often nuanced in its translation to the property sector, with property type, market and location creating further variations. Whilst the “E” has seen the focus on operational emissions, energy and other resource reductions, and to some extent climate change risks, the often overlooked emissions’ contribution, because it is considered difficult to quantify, embodies GHG emissions, due in part to the substantial contributions embodied GHG emissions have in the creation of the property and how mitigating these emissions will make a substantial contribution to emission targets. The “S”, social context, has also seen a significant shift in perception as the arena of indoor environment quality has now expanded substantially to consider a broader range of criteria, and there is urgent need to understand how this translates to individual property assets or portfolios, how it is reported and how this is then viewed by the market, which is already seen to be accelerating in importance.

This Special Issue on “Property Investment: Sustainability and Climate Change” is the second of two Special Issues on this topic. In both Part I and Part II, we see contributions that draw our attention to the growing importance of sustainability, ESG, emissions reductions and climate risks to real estate investment and valuations. Investors, owners and occupiers are challenged with the need to understand their emission liabilities, ESG benchmarks and reporting and exposure to climate risk; it is clear that the basis for decision-making is seeing a substantial shift. The changing market perception and decisions around emission profiles and ESG will be starting to filter into actual actions and pricing in property markets around the world and increasingly will see these considered and weighted in property occupancy and investment decisions going forward.

Part II specifically explores valuers' perception and practice consideration of sustainability in Australia and in the UK; the need to improve benchmarking of sustainability in real estate investment, particularly given the increasing parameters for ESG and sustainable finance and equity investment from different market stakeholders; and the understanding of valuers' approaches to the consideration of future climate change risks in valuation practice and for market values. The industry insights provide a perspective on the continuing uncertainty inherent in the current market, with possibilities of a global economic recession and localised market volatilities, and also the need to better understand the contribution of the “S”, the social dimension in property, and how this has had increasing focus since the political circus and Covid-19 pandemic of recent years and how will the market be valuing this in the future.