The ESG Approach in Real Estate Investment Deals

Environmental awareness emerged in the commercial property market and in legislation in the mid-2000s. In Hungary, environmental, sustainability, and well-being considerations are increasingly moving to the forefront of investment, and rapid adaptation is a significant competitive advantage in the market. Investors are pushing developers towards the ESG approach, strongly emphasizing social responsibility and environmental impact.

The approach has come into focus over the last decade but gained massive momentum during recent years. Operating along ESG principles, especially its environmental part, is not a new thing; however, nowadays, it is no longer an option but a must. Many well-known certification bodies, such as Leed or Breeam, focus mainly on sustainable energy efficiency and others, such as Well, place a great emphasis on the people living and working in the building.

Energy Efficiency in Focus

However, with the large-scale energy crisis that will remain with us in the coming years, the whole issue has suddenly become vital, and energy efficiency has become a critical issue. While the consequences of environmental impacts will take decades to unfold, companies will, without exception, have to react immediately to the up to 10 times higher energy prices. ESG is, therefore, now very much a practical issue, with tenants looking for energy-efficient buildings.

GTC is committed to sustainability and green office buildings at a group level. Investor pressure on ESG has given a considerable boost and raised the bar regarding building expectations and the need to create community value. The energy crisis has also shifted the priority towards energy efficiency and energy security. We are working to make energy costs predictable for our tenants and to create a solution within the group to reassure tenants and maintain their sense of security. We are committed to providing stable, long-term solutions.

Energy management now plays a prominent role in ensuring the long-term efficient operation of energy systems. Efficiency drives include, for example, developing a long-term sustainable heating/cooling system. This has recently become a key consideration in the residential market, too, with buyers and tenants increasingly looking for new-build homes.

How new is This Approach at GTC?

Not very; this way of thinking has always characterized the group, a trend that the unfolding energy crisis is accelerating. Our Leed “Gold”-certified Pillar office building, which opened in March, was built using environmentally conscious, sustainable solutions, with the maximum attention to tenants’ needs.

At GTC, we have always been committed to tenant comfort and creating a motivating working environment for everyone in our office buildings. Although we no longer own it, the GTC White House office building on Váci út is a prime example of this: we transformed an existing structure using state-of-the-art operating principles, taking into account the needs of all the people who work here. Our current flagship development under construction, Centerpoint 3, was designed with sustainability, energy efficiency and the ESG approach in mind. We aim to operate Centerpoint 1, 2 and 3 as a complex working environment in one single development.

Centerpoint 3, along with Centerpoint 1 and 2, belongs to a small group of developments in Hungary: it has enough scale to provide frames for social life and community spaces. Social awareness means supporting our tenants by creating community spaces, sports and shopping facilities.

An ESG-harmonious construction is underway: we are upgrading Centerpoint 1 and 2, creating one large unit together with Centerpoint 3. It will be a prime example of a building complex that is ideal both functionally and visually for the workplace and a variety of community activities.

Worth Renovating/Refurbishing

We will also renovate the existing building stock according to ESG principles. I believe it is crucial to maintain our present buildings, simply because it is worth it even in the short run.

Today, maintaining the energy-efficient operation of the existing housing stock is a significant competitive edge. This development has unexpectedly created a new order of speculative property development. The aim when constructing a building is to achieve long-term energy efficiency, with a view to its subsequent operation from the design stage. This has also become an essential consideration in GTC’s new investments.

Food for Thought

As far as legislation is concerned, we have to reiterate that policymakers should consider that regulation should not distort competition. When drafting new legislation, the aim must be to ensure that it does not affect market players or put some of them in a more or less favorable position.

Regarding environmental impact, accessibility and transport options are also crucial issues; whether a building is conveniently accessible by public transport, as well as the strict requirements for the number of parking spaces to be provided. Current legislation, for example, stipulates the construction of two, three or even four-storey underground car parks. However, it is a perfectly legitimate question to ask whether these will still be needed in 10-20 years as traffic and car use patterns change.

This article was first published in the Budapest Business Journal print issue of September 23, 2022.