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ESG Very Much a Central Issue at International Real Estate Expo

Analysis

“The Path to Net-zero Buildings” presentation at Mipim 2023 on March 16.

Photo by S. CHAMPEAUX / IMAGE&CO

ESG, the interplay of environmental, social, and governance issues, was one of the main themes of debate at the Mipim 2023 commercial real estate and investment expo in Cannes last week. The subject is seen as impacting all stakeholders at all stages in the development and exit process in the real estate and property investment industries.

Real estate is responsible for 40% of carbon emissions globally, with 30% down to development and construction processes and 70% caused by the operation of buildings. Thus, ESG and sustainability issues are relevant throughout the lifespan of a given building and impact developers, tenants, investors, banks, consultants, and architects as stakeholders in the ESG process. 

“In an uncertain global environment, Mipim acts as a catalyst for innovation and a focal point for the transformation of real estate,” Nicolas Kozubek, director of Mipim, said in Cannes.

“More than ever, we experienced incredible energy from political leaders, investors, and the wider real estate community, who are collaborating to create better, more sustainable buildings and places. With the decarbonization of cities foremost on the agenda this year, Mipim has signed the Road to Zero Alliance together with fellow real estate leaders to affirm our sustainability commitments,” Kozubek added.

The Road to Zero zone at the expo contained 400 sqm of exhibition, conference, and networking space, focusing on creating groundbreaking methods to decarbonize the real estate industry.

“The aim of the Road to Zero is to promote proptech solutions in order to achieve net-zero carbon emissions by 2030. We have made a lot of money, and we aim to bring together stakeholders,” commented Thomas Veith, global RE partner at PwC Germany, in a presentation on the aims of the alliance. Developers and investors can be seen as looking to measure value beyond the financial performance alone, and these other elements also impact returns on investment at the same time.

Office Developers Emphasize Importance of ESG

Zsolt Berényi, regional development director at GTC Hungary, commented on the need to develop office projects in accordance with ESG principles at a panel discussion of developers at the Budapest-Hungary stand at Mipim 2023. He argued that there is a need for energy efficiency and a focus on the people in a building. In this way, the design of a project needs to be rearranged to benefit staff. Zoltán Borbély, county director at Atenor Hungary, said that what is required in the office market is an “ESG mindset.” He said his company had been a trendsetter in the Budapest office market by developing the first Breeam “Excellent” accredited office building in the city as far back as 2009.

ESG Critical for Investment

ESG elements are critical elements for a transaction as investors, international corporate tenants, and banks all insist on ESG compliance, commented Mike Edwards, head of capital markets at Cushman & Wakefield, at an investment panel at the Budapest-Hungary stand at Mipim 2023. From an ESG and sustainability perspective, he says assets in Hungary are on a similar sustainability and ESG level to those in Western Europe.

Wing Issues ESG Report

“Being green and sustainable has become a big priority not only for developers, but also for tenants and investors,” said Noah Steinberg, chairman and CEO of Wing. “As a leading Hungarian and regional real estate developer and investor, Wing has a long-standing commitment to environmentally-friendly property development and operation. We have put in place our ESG strategy and published a special report summarizing our accomplishments in terms of ESG,” he explained.

In 2021, the company reached a significant milestone by issuing green bonds, enabling it to integrate environmental awareness not only in the architectural and technical design but also in terms of financing, Steinberg said.

“What we are seeing is that the environmentally responsible development and operation of office buildings is now becoming a standard requirement for tenants. On the operational side, ESG leads to more efficient operations and lower tenant costs thanks to energy efficiency and sustainability pillars. In addition, from an investor perspective, buildings with green certification or companies with sustainable goals have a higher social value and ultimately a higher valuation, so it simply makes more sense to invest in them,” he added.

Breeam Accreditation of Choice in Budapest Office Market

Breeam is the majority third-party accreditation system of choice with office developers in Hungary and the wider Central Europe. According to Colliers, Breeam accounts for 74% of office sustainability accreditations in Budapest, with Leed representing 26%. Analysts argue that a more standardized approach or framework is needed, the direction for which is already set within the new EU taxonomy framework.

Need to Digitize ESG Information, Says KPMG

ESG information in a digital form is crucial for a real estate investor in making an important acquisition decision. An investor requires access to ESG data from the building owners and tenants. This is a valuation issue and therefore involves data collection and analysis using proptech techniques, according to KPMG.

Growing Role of Energy-efficient Residential Buildings

The role of green and energy-efficient buildings for residential tenants is growing strongly, not only as part of ESG policy results but also because of the financial benefits, comments Colliers in its “Living Sector in CEE-6” report. “Consequently, we will soon expect to see a rising gap in terms of rent and value between green and efficient buildings for all countries in the CEE-6 group. This should apply to all real estate sectors, including residential,” it adds.

This article was first published in the Budapest Business Journal print issue of March 24, 2023.

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