Innovating resilience and investing in ESG in a changing world

Investing in ESG has continued to become more mainstream over the past year, with more than $200trn of financial assets, not just real estate, now managed by firms signed up to the Taskforce on Climate-related Financial Disclosures (TCFD). In Asian real estate markets too, the importance of ESG is gaining traction.

At the same time increases in material and energy costs combined with potential affordability pressure on businesses could pressure some governments to pause moves towards meeting Carbon Neutral 2050.

We are also seeing heightened awareness of ‘greenwashing’ and investors applying greater governance to ESG attributes of an asset.

Despite these potential headwinds, much of the sea change in focus on ESG in the real estate sector comes from those largest forces of change, the investors’ investors. Therefore, even if some governments do pause planned regulations, the real estate sector is likely to continue to forge ahead with a focus on ESG.

Increased ESG demand

In a time of materials shortages and increased costs, some may argue we will see a ‘back to basics’ approach to buildings. However, the challenging economic situations could also accelerate demand for ESG buildings.

Increases in material costs could favour refurbishments over new builds or, where new builds are constructed, encourage increased use of recycled materials, supporting the mitigation of embodied carbon in the sector as a by-product of responding to economic challenges.

Energy costs may also put pressure on some occupiers requiring new space to focus on lower-energy use, smarter, sustainable buildings which are also attractive to talent in an environment of tight labour markets.

Alongside the short-term economic and geopolitical disruption, the longer-term necessity for energy-efficient buildings driven by climate change remains constant.

Increasingly volatile weather will require building design to apply ever greater attention to withstand the effects of climate change - escalating extremes of temperature, wind and precipitation - and the best buildings will also mitigate local climate risks.

Case studies: best-in-class ESG considerations

We highlight two examples of novel construction design and ESG best practice:

• Atelier Gardens, London, United Kingdom 
• Roots in the Sky, Berlin, Germany 

These buildings are designed to combat climate risks to themselves and also to help protect the local environment. They use forward-thinking methods to help occupiers achieve their own CSR requirements within the building and also encourage biodiversity.

This is a key tenet of the increasingly important Taskforce on Nature-related Financial Disclosures (TNFD) which supports the movement of financial flows from investments which impede nature and biodiversity, to those that support it.