Embracing a greener future

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Global networks HLB and Multilaw portend the prospects and challenges of ESG around the world

ESG or environmental, social, and governance has become a significant factor in the real estate sector, with stakeholders and investors increasingly prioritising sustainable practices.

Governments are implementing energy efficiency standards. Investors as well as tenants are insisting on more sustainable buildings. Energy-efficient properties are expected to have higher occupancy rates and lower vacancy rates while low-quality, inefficient buildings will require significant investment.

Real estate also plays a vital social role, positively impacting local communities and attracting consumers, thereby boosting the local economy. These considerations and other ESG factors are now shaping investment decisions, development projects, and ongoing operations in the real estate sector, according to a global outlook published by HLB and Multilaw.

HLB, a global advisory and accounting network, and Multilaw, a global network of law firms, joined forces earlier in 2023 to co-author a report on how an increased focus on sustainability is shaping the real estate sector.

Drawing on the real estate expertise of both networks, the report finds that the importance of adopting more sustainable practices in the sector is high. It also reveals that economic challenges, such as rising construction costs, have made it difficult for investors and developers to meet ESG expectations.

Nevertheless, despite the challenging economic climate, real estate opportunities are plentiful, from the growing subletting business to the rising importance of proptech.

Technological innovations are playing a crucial role in making real estate more sustainable. Smart building technology, including sensors and IoT devices, helps monitor and reduce energy consumption while sustainable materials and construction practices minimise environmental impact. Virtual and augmented reality aid in visualising designs and improving sustainability.

Proptech also promotes the adoption of renewable energy sources like solar panels and energy storage systems. These innovations are driving the real estate industry towards a more sustainable future.

There’s a lot of proptech being developed that is able to collect and measure data and report about sustainable practices to not only focus on your own sustainable practices, but also of your suppliers, too, to develop that whole supply chain that is sustainable.

From a global perspective, ESG practices vary greatly across the world. Asia is seeing a marked increase in traction for green leases. They constitute an agreement between tenant and landlord to improve the property’s environmental performance through cuts in energy and water usage and reducing waste.

Meanwhile, the Middle East are viewing ESG as a top priority ahead of the Conference of the Parties of the UNFCCC (COP28) summit in November 2023. The summit, which is the 28th United Nations Climate Change conference, is being hosted by the UAE. While climate concerns have been a big consideration in the region for several years, the summit has spurred an even greater commitment to creating sustainable buildings.

There’s a lot of proptech being developed that is able to collect and measure data and report about sustainable practices to not only focus on your own sustainable practices, but also of your suppliers, too, to develop that whole supply chain that is sustainable

Africa is seeing sustainability rise as a megatrend that is forcing change. It seems likely that the African region will need to craft its own unique approach to the creation of sustainable buildings which is more in line with its GDP per capita.

ESG is also starting to take more precedence in Latin America (LATAM) and the Caribbean. Companies and governments are issuing many sustainability-linked bonds to create ESG policies with genuine impact.

Investors and lenders across Europe are increasingly analysing the credentials of their investments through an ESG lens. This is challenging investors and governments as they juggle ESG policy, economic growth, and asset growth.

In contrast to Europe, the US is divided in opinions regarding climate change. Some of the country’s more prominent landlords are still sceptical of the view that higher rates result from sustainability or ESG features. Instead, they view the “newness” or novelty of these buildings as the cause of the rate increases.

In the coming years, the real estate sector will see a continual rise in advances that will pave the way for more sustainable practice. The capabilities of proptech to drive sustainability in real estate are exciting and promising.

By leveraging technology to monitor energy usage; using sustainable materials and practices; and adopting renewable energy sources, the real estate industry can make significant progress towards a more sustainable, greener future.

Paul is co-managing partner of HLB Thailand. In that position he shows that relationships with clients and colleagues are key to display the true value of HLB as a leading provider of professional services to clients carrying on business in Thailand. With over 30 years of experience providing professional services, including more than 20 years in Thailand, his international experience and inquisitive character allow him to view opportunities at hand and offer new ways to set up processes and to give room for new and better services to clients.

To download the report by HLB and Multilaw, visit www.hlb.global