ESG is moving to the heart of property portfolios
The Covid-19 pandemic has accelerated the need to transform the spaces where we live, work and socialise.
And it’s clear that commercial and residential developers and those working in property finance are becoming keenly focused on sustainability and affordability.
Whilst environmental, social and governance (ESG) certainly isn’t new, its principles are vital and it’s imperative it sits at the heart of any property portfolio.
ESG principles as standard
The growing importance of ESG principles was recently highlighted by The British Property Federation that set out plans for a Net Zero Pledge.
This aims to unite property owners and investors in tackling carbon emissions from the built environment and achieving net-zero by 2050.
Its recognition that this stakeholder group will be key in tackling climate change. Although it’s acknowledged more needs to be done by central government around infrastructure and incentives, the focus also provides opportunities for sector collaboration to innovate, accelerate change and maximise sustainable returns.
Protecting your investment
It’s heartening that there’s often plenty of discussion around the confidence in the UK as a safe haven for property investment following Brexit, with only some concern from European investors around its impact.
And it’s fantastic to see there is still a weight of money with investors looking for product, and debt providers looking for investors and developers.
Hot sectors include student accommodation, co-living and hotels, all of which are long-term investment plays with regular high yield.
But adopting ESG principles will be increasingly key to attracting capital and protecting this investment. It’s now being considered at every stage of the property lifecycle, from due diligence to acquisitions, from leasing to asset management and increasingly in relation to refinancing options. Only last year the FRC (Financial Reporting Council) introduced a new ESG code comprising 12 principles for investment and detailed evidence of compliance must be provided.
In-line with Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, reporting has been mandated by law from 6th April 2022 for more than 1,300 large UK-registered companies and financial institutions and this requirement will extend to their investments in property.
Further legislative changes are on the horizon with the FCA’s (Financial Conduct Authority’s) policy proposals due in the first quarter of this year.
The legislative standardisation of required investment data will be a huge driver of change with any potential financial penalties the government could introduce acting as a further accelerant.
What next? It will be fascinating to see how the ESG agenda develops within the property sector this year.
Until then myself and my team will be working with our clients to anticipate and respond to this agenda and other opportunities as the property industry continues to thrive and evolve.
For further insight and advice: [email protected]
Oliver Bretherton is a Banking & Finance Partner at gunnercooke, an innovative consultancy model law firm which has over 500 employees across Europe.
He has over 15 years’ experience advising on complex structured and secured real estate finance transactions, predominantly acting for a combination of German banks, debt funds, alternative lenders, corporate borrowers and clearing banks.
He also has experience in advising financial institutions, corporates and funds on a wide range of financing matters including acquisition finance, restructuring and general bank lending.