What's the impact of ESG - Environmental, Social and Governance?

The term ‘ESG’ has been bounded around for some time now but what does it mean and should we engage?

‘ESG’ stands for Environmental, Social and Governance which is becoming an important measurement and standard for businesses according to the UK media.

The sense of urgency to adopt ESG as a standard is clear. If businesses act now, it will give the UK a chance to meet targets and secure a liveable climate for future generations.

But what effect has that had on the commercial property market?

The UK’s built environment is responsible for 25% of total UK greenhouse gas emissions. However, last year, war, inflation and an impending recession was a test of companies' commitment to sustainability.

That said, some property professionals have dubbed ESG as ‘the passport to a property’s future’ and we are noting a change in investor demands as they react to increasing sustainability and climate change regulation.

Equally, the demands of tenants/occupiers are evolving to make environment and social decisions a priority when reviewing new business space.

My hope is that the decision-makers in the built environment consider what is needed to make a meaningful contribution to reduction targets and that property professionals, investors and occupiers prioritise future-proofing assets in this changing climate."
Anna Smith, Commercial Surveyor, Norwich.

The Broadland Food Innovation Centre, situated just outside Norwich.

Another key consideration includes the UK’s 2050 net zero target, European-driven investor priorities and increasing legislation, all requiring absolute transparency over fund sustainability investment criteria.

From a property investment perspective, achieving net zero carbon principles involves the consideration of the whole-life carbon of a building within a portfolio.

Investors can do this by establishing a Green Leasing Strategy across their assets. In Norwich, Broadland District Council has adopted one for the Broadland Food Innovation Centre.

This ensures there is engagement and collaboration between the occupier and landlord. The occupier is then obliged to comply and adopt green standards whilst designing their fit-out.  

Meanwhile, the 'Social' element of ESG is also increasing with organisations addressing the needs of their workforces and supporting local communities as well as implementing 'Governance' by delivering responsible business objectives.

Whilst there are limitations and challenges with ESG and many landlords/ investors are currently distracted with market turbulence, we need to keep this topic in discussion.

My hope is that the decision-makers in the built environment consider what is needed to make a meaningful contribution to reduction targets and that property professionals, investors and occupiers prioritise future-proofing assets in this changing climate.

For more information, you can contact Anna Smith, Commercial Surveyor, Brown&Co, Norwich on 01603 629871.