How is sustainability making real estate more transparent?

Better sustainability reporting and increasing mandatory disclosure requirements for building performance are bringing greater clarity to the market

September 22, 2022

Sustainability is a new marker of transparency in real estate as investors, companies, governments and the public increasingly look for clear long-term targets, regulatory standards and metrics to measure environmental impact and risk.

Amid the widespread acknowledgement that climate change poses a financial risk and urgent action is needed, the pressure is on to show tangible progress in decarbonizing the built environment and boosting resilience. And that’s a boon for greater transparency in real estate markets.

“Transparent real estate markets are based on accurate and reliable information, metrics and data to enable investors and occupiers to make intelligent decisions,” explains Jeremy Kelly, director in global research at JLL.

“They need to have a robust legal and regulatory framework that’s enforceable, along with good corporate governance so that corporations are doing what they say they’ll do.”

More companies are increasingly gathering data and publicly reporting back on their progress towards their own decarbonization targets but the move to make energy efficiency and emissions standards for buildings mandatory is also having an impact on boosting transparency.

JLL’s 2022 Global Real Estate Transparency Index report ranked countries on a range of sustainability instruments such as building energy use and efficiency reporting; energy performance standards; emissions tracking and benchmarks; and climate risk reporting.

European markets made the most progress due to their focus on sustainability measures and frameworks, coupled with the increased use of green and healthy building certifications. The EU’s updated Energy Performance of Buildings Directive and initiatives such as the Green New Deal and Fit for 55 package are also having an impact.

However, it’s major cities such as London, New York, Paris, Sydney and Toronto that are really pushing hard on decarbonizing buildings and introducing some of the more stringent regulations, says Kelly.

“They’re gravitating from energy efficiency to measuring emissions, from voluntary to mandatory, and from operational emissions to whole-life embodied carbon. In the future we’ll see more carbon pricing and more focus on looking beyond carbon in terms of circularity and biodiversity,” he adds.

A fast-evolving space

As the global decarbonization drive gathers pace, more sustainability initiatives are also starting to address climate resilience by ensuring that standards provide clarity around making buildings, cities and urban planning frameworks more able to withstand future risks.

And while the environment remains top of mind, sustainability and ESG concerns are now broadening to consider how the built environment can deliver a positive social impact by supporting community health, wellbeing and equitability.

“Many companies are now focusing more strategically on the ‘S’ and the ‘G’ – the Social and Governance aspects of their business, and setting related goals,” says Cynthia Curtis, JLL’s Corporate Sustainability Officer for the Americas. “More regulations and metrics to enhance and provide guidelines for these goals are likely.”

It’s part of a wider move towards more robust corporate reporting on sustainability initiatives. “Market forces are really putting corporate sustainability reporting in the spotlight – and with it highlighting the growth in perceived greenwashing,” Curtis adds.

More standardization needed

While sustainability is improving transparency within real estate, there are challenges limiting its impact – particularly due to the lack of standardization in policy, regulation and reporting across markets.

Many sustainability indicators are new and are used in different ways in different countries. Meanwhile, inconsistencies around data collection and reporting prevent benchmarking and accurate measurement of progress. As a result, investors, owners and occupiers find them difficult to navigate and understand their responsibilities across markets.

“Alignment of regulatory initiatives, harmonization of targets and more standardized data will be needed to help improve transparency and enable companies to achieve their decarbonization targets,” says Kelly. “Furthermore, standardization would enable them to learn, share and improve upon current practices.”

Incoming legislation enforcing specific frameworks in the EU and at national level will be a step in the right direction.

“Up until fairly recently, the frameworks used for sustainability have all been voluntary and were essentially created by the sustainability industry,” explains Curtis. “Governments have recognised that and we’re starting to see more regulatory requirements being proposed, if not already put in place.”

Industry initiatives are also underway to improve alignment – from the OSCRE Industry Data Model to the IFRS Sustainability Standards Board on financial reporting.

But with the market already moving faster than legislators, companies who wait until the last minute to take action on decarbonizing their real estate could get left behind, warns Curtis.

“Owners and occupiers behind the sustainability curve risk their asset losing value or could be unable to lease their property or command the highest price point,” she says. “At the end of the day, it’s an economic decision to recognize the investments needed and those that don’t could end up with a stranded asset.”

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