ESG Due Diligence is a fundamental tool for understanding and assessing the status of real estate assets according to environmental, social, and governance criteria.
In Europe, understanding the positioning of assets concerning these requirements becomes essential for investors who need to align with decarbonization goals by 2050. ESG due diligence goes beyond regulatory compliance checks; it provides a detailed and proactive view that allows planning and implementing measures and sustainable strategies, safeguarding asset value, and ensuring long-term resilience.
ESG Due Diligence nowadays: criteria and technical reference
ESG Due Diligence is a complex framework that requires a thorough evaluation of real estate assets based on several key criteria. These criteria provide a complete overview of asset ESG performance and areas where improvements are needed to meet international standards and stakeholder expectations.
Main considerations:
- Operational Carbon and Energy Consumption Reduction: monitoring CO2 emissions per m2/year and verifying alignment with emission reduction roadmaps, such as CRREM, enables decarbonization planning and compliance with emission reduction targets. One strategy is to integrate renewable sources that contribute to the reduction of the carbon footprint and the achievement of climate neutrality goals. Another element to consider is the measurement of primary and final energy consumption (kWh/m²/year) which offers crucial information to assess the effectiveness of the implemented energy solutions and to compare the asset with industry standards.
- Environmental sustainability, health, and well-being certifications: proving the asset’s commitment to sustainability and the well-being of occupants. Some examples are LEED, BREEAM, and WELL, which not only improve the attractiveness of buildings on the market but also increase stakeholder confidence in responsible asset management.
- Physical Climatic Risk Assessment: the analysis of risks associated with increasingly frequent extreme weather events (e.g. floods and heatwaves) helps to understand the asset’s vulnerability and its ability to adapt to changing conditions. An adequate assessment and the implementation of mitigation measures enhance resilience and protect the long-term value of the property.
- Location and mobility: the area of an asset and its accessibility to public transport, combined with the presence of infrastructure for sustainable mobility, such as electric vehicle charging stations, significantly influence the value and attractiveness of the property. These factors reflect a commitment to sustainable urban management.
- Diversity, Equity and Inclusion: verifying the asset compliance to DEI principles guarantees that spaces are accessible and inclusive, responding to the needs of a society increasingly focused on social justice and equal access.
Transition risk and strategic impact on real estate investment decisions
Transition risk represents a complex challenge for the real estate sector linked to the adaptation process to a low-carbon economy. This risk includes several technical and economic factors, such as decarbonization costs, technological obsolescence, rising energy costs, and the implementation of carbon pricing policies. Every element can significantly affect the profitability and value of a real estate asset, making an accurate and comprehensive valuation crucial.
ESG Due Diligence is the technical tool that allows to in-depth collect and analyze the information needed to assess transition risk. This analysis includes detailed measurement of operational and embedded emissions, overall energy efficiency, and the asset’s compliance with current and future regulations, such as the Energy Performance of Buildings Directives. Detailed Due Diligence allows the identification of costs needed to align the asset with decarbonization targets and offers an analysis of technological and infrastructural vulnerabilities that could compromise the competitiveness and sustainability of the property. Accurately calculating these aspects is essential to avoid underestimates that could negatively affect profitability forecasts and investment returns.
The impact of strong ESG Performance on property value
Assets with strong ESG performance tend to maintain and increase their value due to several competitive advantages. Properties with a strong ESG profile attract institutional investors and sustainability-oriented investment funds due to their lower risk exposure and greater stability.
Energy-efficient practices help reduce operating costs allowing to increase Net Operating Income (NOI) and improving overall profitability. In addition, assets with the best ESG performance are more resilient to increasingly stringent regulations and weather events, protecting against sudden write-downs and ensuring business continuity.
Furthermore, certifications such as LEED, BREEAM, and WELL show the commitment towards sustainability and increase the attractiveness for tenants, leading to higher occupancy rates and longer, more stable leases. This helps to ensure a sustainable, long-term return on investment.
Ultimately, a complete ESG Due Diligence represents a precious tool in in the evaluation stages for the acquisition of a property too. Examining ESG performance in advance allows potential risks and areas for improvement to be identified, including any hidden costs, thus contributing to a more accurate assessment of the real value of the asset. This process allows a strategic allocation of funds, optimizing the resources needed to maintain and increase the value of the property over time.
GET Commitment to ESG
GET Consulting stands out as a leader in technical support and ESG consulting for the real estate sector.
GET’s multidisciplinary team includes LEED, BREEAM, and WELL-certified experts, as well as specialists in energy audits, dynamic energy simulations and Life Cycle Assessment (LCA) analysis. Our professional knowledge of the sector has enabled the development of its own efficient ESG Due Diligence scheme, based on models and best practices developed and recognized on a European and international scale, which it offers clients to evaluate individual assets and entire portfolios.
GET ability to combine advanced technical skills with an in-depth knowledge of international standards enables clients to optimize their management strategies, improve asset sustainability, and align with evolving environmental regulations.
