A Savills Investment Management research has revealed that investors expect “green lease clauses” to be universally implemented between tenants and real estate investment managers before the end of this decade.
Green clauses in leases are an effective method to put principles of sustainable ownership and occupation into action.
Most commonly, they oblige owners and occupiers of a building to ensure that specific environmental standards are maintained during occupation and to share emissions data, which is crucial to implementing resource efficiency strategies and furthering carbon reduction targets.
The Annual Sustainability Report 2019 – which surveyed 111 institutional investors involved in commercial real estate across EMEA, North America and APAC – showed that 73% of investors see green lease clauses being implemented by July 2029, with an average consensus pinpointing September 2026.
Only 17% see it taking longer than the third quarter of 2029.
The research also showed that two in three institutional investors (67%) believe that for green leases to be successful, it is important to leverage technology such as automatic meter readings and sensors to assess building sustainability.
Such technology enables asset managers to provide buildings that are more energy-efficient and technologically smart, which are increasingly in demand by tenants, the report highlights, Savills IM said.
“However, despite the obvious benefits, the report points out that the collection of environmental, social, and governance data for built assets remains uniquely challenging for the industry because it relies not only on the use of technology but also the relationship with tenants who, in many cases, own and control the data.”
Lucy Auden, head of ESG, Savills IM, said the point at which green leases become universally implemented will be a watershed moment for the real estate industry.
“We are already seeing governments around the world significantly strengthen their policies to counter global warming from 2025 onwards, and compulsory green leases will be a pivotal tool for them to do so, given that operational emissions (from energy used to heat, cool and light buildings) account for nearly a third of global CO2 emissions.
“The drivers and willingness are already there – our research shows that climate change resilience is the most important environmental issue for institutional investors, with 61% of our respondents citing it.”
Kiran Patel, global CIO and deputy global CEO, Savills IM, said: “If real estate asset managers are to apply ESG principles successfully then they will have to engage with all stakeholders, including suppliers, service providers, owners and occupiers of buildings.
“For this to become standard practice, then we must all fundamentally change the way we operate. We have a collective responsibility to work together for the common goal.”