The majority of investors in the real estate industry view the risk of non-compliance with ESG (Environmental, Social, and Governance) requirements as a financial risk that could negatively impact their finances or the value of their assets. As shown by a new publication prepared by the Polish Council of Shopping Centers (PRCH) and the Polish Chamber of Commercial Real Estate (PINK), sustainable development is currently a crucial element of the long-term strategy of many entities operating in the Polish commercial real estate market. Already, 85% of surveyed firms have representatives responsible for ESG topics, and in nearly 40% of cases, this is their sole area of responsibility. ESG issues are starting to play a critical role in every stage of the property life cycle, from investment planning, through construction and commercialization, to comprehensive property management.
“When green buildings appeared many years ago, they were initially considered a trend or fashion. But now we know that sustainable development and green buildings are part of ESG and they are here to stay. 78% of investors believe that the risk of non-compliance with ESG requirements is a financial risk that will negatively impact their finances or property values. This shows that investors and building owners already understand the importance of these issues, identifying ESG as one of the factors combating global warming, serving the good of the planet and society,” says Agnieszka Hryniewiecka-Jachowicz, a board member and operating director of the Polish Chamber of Commercial Real Estate.
The Polish Council of Shopping Centers’ leading director, Krzysztof Poznański, adds: “The benefits associated with implementing ESG are twofold. The first aspect is obviously ethical – by implementing ESG solutions, the industry fulfills its obligations to people and the environment. The second aspect relates to financial benefits. European regulations impose many obligations on commercial real estate businesses. Non-compliance will result in penalties and certain difficulties. For example, buildings that do not meet standards will not be able to be sold or rented.”
According to the International Energy Agency (IEA), the construction and operation of buildings account for over a third of global greenhouse gas emissions, with the highest carbon footprint derived from the operational phase of buildings. However, real estate in Europe, like all other sectors, is inevitably moving towards a sustainable direction driven by EU regulations, aimed at achieving climate neutrality by 2050.
Commercial real estate companies, large and small, are preparing to meet these regulatory requirements. ESG factors are beginning to play a critical role in every stage of the property life cycle. The most recent publication by PINK and PRCH shows that from the perspective of investors and owners, and also the tenants of the buildings, this has a significant impact on the attractiveness and pricing of real estate.
Despite these efforts, the industry faces some challenges in implementing ESG. “First, there are mental difficulties because everyone believes that if something works well, why change it, so naturally, there is resistance. The second area of difficulty is the economic environment and infrastructure, which are not yet fully prepared to implement ESG solutions. The state of the transmission network, the availability of green energy from renewable sources, legal regulations – all of this is not ready and hampers the implementation of ESG. And finally, the third area is the difficulties associated with financing ESG activities, which require investments,” says Krzysztof Poznański.
Banks’ expectations are not uniform when it comes to the commercial real estate sector. However, the vast majority – 90% of financial institutions – have an internal ESG policy and verify the compliance of planned investments with ESG standards based on their own list of criteria. “When property owners or developers need bank financing, then banks – already subject to the SFDR regulation – transfer these requirements to borrowers. To obtain bank financing now, one needs to consider ESG aspects,” says Agnieszka Hryniewiecka-Jachowicz.
The real estate market is gradually shifting on the ESG issue from theory to practice. By that, the “green clauses” are increasingly used in rental agreements. These are additional provisions or annexes that outline efforts each party needs to make to ensure the building and its space are maintained, used, and managed in an environmentally friendly and sustainable manner. Experts suggest that the presence of such clauses will soon be standard, and their degree of specificity is set to increase.
“Green clauses are a package of solutions included in lease agreements intended to ensure the implementation of all ESG provisions. They impose certain obligations on both parties, which can cause difficulties in their implementation. In the end, however, leasing space in buildings that are more attractive to tenants and clients is easier and brings more benefits,” says the managing director of PRCH.
