European real estate companies see ESG as highly relevant to their investment strategy and are well-resourced for it, but costs, legislation and documentation present an ongoing challenge, according to new research.
A survey of 160 European real estate experts conducted by data room specialist Drooms has found that while costs are the biggest barrier to implementing ESG measures, cited by over half of respondents, the lack of regulation (47%) and the complexity and additional documentation burden (44%) are also key inhibitors.
Around 83% of the real estate professionals surveyed plan to give greater consideration to ESG in their investment strategy in the coming year, and 70% of the respondents already have a dedicated individual responsible for ESG.
Petter Made, SVP product & development at Drooms said: 'The documentation process is one of the big hurdles to implementing ESG measures.
'Companies therefore often perceive ESG as a burden rather than an opportunity. Interestingly, many companies are also concerned by the lack of regulation. They lack implementation and legal certainty for their ESG strategy. This sometimes culminates in a wait-and-see attitude: to avoid getting it wrong, you'd rather not do it.'
Made added: 'Digital data room solutions can help manage the complexity of ESG requirements – not only by keeping documentation organised for reporting purposes but also for the implementation of new regulations and for easier comparison of different assets within a portfolio.'
ESG benefits
The respondents see the greatest advantage of ESG for real estate in the financial area. For almost 65% of respondents, greater attractiveness to investors and financiers is one of the biggest advantages, while increasing the value of their own assets is interesting for 60%.
Reducing operating costs (39%) and higher rent (27%), on the other hand, are attributed less relevance. But reducing emissions and the associated climate protection are also among the most important factors for around 64%, as is taking responsibility (39%).
The E in ESG remains the primary focus (87%) with social aspects (30%) and governance criteria (25%) trailing far behind.
Overall, the ESG compliance of assets is a decisive factor for the respondents. Some 54% would be very unlikely to invest in a non-ESG compliant property. 93% would rather invest additional money in the ESG compliance of their assets than sell them at a potential loss.
Overall, loss of value is the biggest concern with regard to ESG regulations (64%). Around 20% are concerned about potential long-term negative marketing consequences and 9% about potential penalties.
Evolving scenario
The report found however that in day-to-day business, ESG does not yet influence decision-making as much as one might expect. On average, the companies surveyed see the influence at 6.95 points on a scale of one to ten.
Respondents have high hopes for technological solutions such as data management platforms for storing and analysing relevant ESG data. On a scale of one to ten, they answered with an average of 7.42 to the question of 'how strongly they expect such solutions to play a crucial role for investors in the future'.
However, many respondents still rarely use the possibilities of such tools: 60% of them store the data for the documentation process on their own server, 36% use a cloud, and just 24% use a data room thus far.
For about 20% of the respondents, the documentation process takes more than six months, for 20% it takes four to five months and for 47% it takes two to three months.
