Feature: Data will be critical to the real estate industry
By Edwin Groenendaal, CEO of HARNESS Data Intelligence
Following Earth Day earlier this month, it is important to note one of the biggest unknowns when it comes to data and real estate is how ESG is measured.
The built environment accounts for 40% of the UK’s carbon footprint with the majority of emissions produced by burning fossil fuels for heating and hot water. Rapidly rising carbon emissions over the past 30 years mean the world faces increasingly harsh and unpredictable conditions. To address this, the UK government has announced a plan for net-zero emissions by 2050 with some city-regions in the country being more ambitious, promising net zero in less than 20 years.
The response for the property world is to reduce energy use in buildings while also making these buildings resilient to extreme weather. Real estate investors are also now incorporating ESG into their investment risk analysis, where reporting will need to keep pace with evolving products and structures as the industry shifts further towards sustainable lending.
However, how the industry evaluates the performance of sustainability is yet to be determined. Governments, regulators, and industry bodies are scrambling to catch up and impose standards for the sector to measure up to. For example, the data which lenders need to monitor the performance of green and sustainability-linked loans wildly varies according to asset class and jurisdiction – benchmarks are yet to be finalised meaning there is no standard formula.
New technology can help us collect, process, and evaluate data. Solutions such as HARNESS Data Fabric, can help understand ESG performance in a standardised manner. However, data around the assessment of ESG remains a complex and subjective area.
The carbon associated with a building is measured by the amount of energy required to operate the building and keep it comfortable (operational carbon), but also includes the energy used to produce the building materials (embodied carbon). The most sustainable buildings are those which require little energy to operate and have been built using materials which require little carbon to produce. There are a number of different design methods and target standards for sustainable, low energy buildings in the UK including: Zero Carbon, Zero Energy, Near Zero Energy Building (NZEB), AECB standard, Passivhaus (or Passive House), BREEAM, etc.
Energy-efficient ratings are easier to quantify than well-being or a buildings’ social impact, and the cost of capital to achieve high scores in these areas can vary hugely. This is why when people talk about ESG, they are mostly talking about the “E”, which makes sense as things like energy consumption, carbon emissions, or waste reduction can easily be calculated and reported. However, being good for the environment is not the only factor when it comes to sustainability. The “S” in ESG doesn’t garner as much attention (or money) as environmental sustainability, but it is an important consideration when it comes to a company’s footprint in society.The social impact of investments is especially crucial for real estate portfolios whose assets literally make up the building block of our cities. The property industry has always been seen as profit-oriented and slow to change but when it comes to embracing a sustainable mindset owners and operators have shown their commitment to social causes.
For the time being, real estate players are taking different approaches to measure ESG performance. But there will be more standardisation needed as key metrics are adopted across the industry. Amid the uncertainty, one thing we can be sure of is, as expectations around ESG performance increase, the emphasis on collecting, analysing, and sharing data will grow as we fully embrace ESG principles to reach the net-zero targets.