Editorial: Getting Committed to ESG and Sustainability

Analysis

Photo by Black Salmon / Shutterstock.com

About eight years ago, I had a startling meeting with a former senior executive at a real estate consultancy firm who was dismissive of the rationale behind green accreditation.

He argued that developers weren’t seeking certification because they wanted it but because they felt they had to. Budapest was still very price sensitive, and he did not believe a tenant would choose a building that had recycled wastewater or solar panels, for example, over one that did not, once they saw the price difference.

I was reminded of this conversation when I sat down for a lengthy interview with Tibor Massányi, the managing partner of the DVM group, which you can read on page 14. Massányi, whose company has long been a green pioneer, wasn’t cynical about certification but passionate, and yet he made what struck me as a familiar point about ESG (environmental, social and governance), the current buzzword in the construction industry.

What interested me was that he drew a distinction between the various construction sectors, and between sustainable accreditation from the likes of BREEAM, LEED and WELL, on the one hand, and ESG, on the other. The problem with ESG was two-fold, he told me. While it is a good catch-all, it is tough to pin down what it actually means and how you measure it. Secondly, and this may be linked to that first argument, he sees a lack of “commitment” to ESG.

He also thinks the office sector is more mature than, for example, the residential. Green office certificates are no longer a differentiator on the market but a “must-have.” I can’t remember the last time an A-class office was built in Budapest that did not have at least one form of accreditation. Indeed, the recent trend has been to go for at least two. But it has become the norm because it has been market-led. Employees have become more aware of the environmental challenges facing the world and want to work in sustainable buildings. Employers, who operate in an extremely tight labor market in Budapest, want to hold on to their staff and thus need to find offices that tick the right boxes. Combined, these forces mean a green-accredited office building is easier to lease fully than one that is not. Such an asset makes more money quicker for its owners, and if, as an investor, you want an exit at a good price, your building really has to be certified.

Perhaps the biggest differentiator between those two conversations is the years separating them. Only die-hard climate change deniers now argue our actions are not having a serious detrimental impact on our planet. Massányi says he is aware of his industry’s responsibility in contributing to the problem in the first case and mitigating it in the second. Some things don’t change, though. As I replayed that first conversation in my head, the phrase “price sensitive” rang a bell. Sure enough, one of our expert witnesses inside this issue makes that same point. Some changes take longer than others, I guess.

Be that as it may, “sustainability” as a concept is here to stay. ESG looks precisely like the sort of field the European Union would want to get heavily involved in legislating. Perhaps, in the greater scheme of things, it doesn’t matter whether the drive for sustainable buildings across all construction sectors is developer-led or market-led. What matters is that we get there. And the quicker, the better.

Robin Marshall

Editor-in-chief

This article was first published in the Budapest Business Journal print issue of May 6, 2022.

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