Effects of demand for ESG on real estate

The need for ESG (environmental, social, and governance) credentials in the real estate sector is increasing as sustainability requirements rise. 

  Consumers and businesses are looking for greener spaces and carbon-neutral operations as regulations become harsher. 

  According to Benjamin Tay, deputy head for corporate real estate at Rajah & Tann Singapore LLP, factors like net-zero requirements and the ongoing push for decarbonisation across all sectors, including the real estate sector, are crucial considerations that investors must wrestle with in their current investment decisions.

  He said in an interview that a property's carbon footprint would be the most important factor to take into account because climate change is the key motivator for many ESG compliance and related actions.

  "ESG considerations are fundamental to the real estate industry and its stakeholders as they directly affect the demand for and use of real estate properties.

  "Many tenants and occupiers may themselves also be under comparable ESG obligations, whether at a regulatory or company level, which could dampen the demand for specific real estate if it fails to meet key ESG metrics.

  "However, just because a property meets today's regulatory standards doesn't guarantee it will comply with future requirements in this area. A future-proof investment strategy should involve a best-in-class approach to ESG compliance, with a particular emphasis on net-zero requirements," he said.

  In light of the fact that ESG regulations are still developing and that many initiatives are based on current best practises and standards, Tay advised investors to consult real estate experts for assistance (both legal and non-legal) on the ESG requirements that apply in each country.

  Tay Hong Beng, partner and head of real estate at KPMG Singapore, said that although ESG elements have been gaining popularity for some time, the post-pandemic environment and recent events, such as the energy crisis, have increased momentum towards sustainability. 

  According to him, more firms and consumers are setting higher expectations for ESG factors, therefore, it is anticipated that sustainability criteria will increasingly be included in real estate projects.

  Tay said that the increased focus on sustainability is evident in all facets of the market, beginning at the top, where authorities are enforcing stricter and even obligatory sustainability norms to entice investors and lenders to fund green businesses and projects. 

  Additionally, multinational corporations are paying closer attention to the carbon footprint of the buildings they occupy and how they manage their operations to achieve net-zero goals, he said.  

  Similar to this, Tay said, customers expect the government and developers to design greener areas where they can live, work, and play.

  According to Tay, in order to satisfy these demands, property managers and landlords must adopt a comprehensive strategy and concentrate on reducing the building's overall carbon footprint rather than merely the quantity of carbon emissions produced by the building's regular activities.

  He added that as green building ideas evolve and become more complex, real estate developers can use technology—such as a digital twin—to test out brand-new green building concepts. 

  In order to significantly reduce the carbon footprint of buildings, the technology may also be used to uncover holes in the design of the structures and ways to integrate the use of renewable energy sources into the infrastructure, he said.

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