Unlocking the Full Potential of ESG in the Built Environment

The built environment shapes our lives, shapes our world, and will shape our future. It’s one of the world’s biggest asset classes, and is responsible for 39% of global energy-related carbon emissions. 

There is a clear need for the sector to improve its sustainability practices at pace – the built environment must decarbonise at a rate of 6% per year through to 2030 to meet the UN’s Sustainable Development Goals. The current energy crisis only adds economic and political weight to the issue. 

Reducing the sector’s carbon footprint requires an end-to-end evaluation of the industry, and must include all stakeholders: investors, asset owners, operators, and occupiers.

It requires thinking about portfolios – how do we plan space in a way that limits our footprint and accounts for hybrid working models?

It requires thinking about technology – how do we optimise the efficiency of our existing building stock through the use of IoT, and how do we procure energy with a greater weighting towards renewables?

And it requires thinking about the data that underpins it all – how do we consistently and accurately measure our carbon emissions, and how do we set effective targets and benchmarks? 

PropTech: a potent avenue of sustainable growth

As the 2021 Annual ESCP Barometer shows, PropTech has been a buoyant investment area in the last few years. In 2020/21, nearly $1bn (£871.45m) was invested in the sector in the UK. Given the major structural challenges in the market, and the sector’s “undigitised” state, investors are eager to identify and grow businesses in the space. 

From our experience, there are three key success factors that industry professionals and potential investors should consider to maximise their performance in an exciting market:

  • Companies that blend advisory services with a software offering are best placed to serve firms through their net zero transition and beyond

Traditionally, investors have tended to favour a software-based model due to scalability and high margins, as well as the simplicity of a single-platform approach. In the long term, software platforms will be the winning business model and prove a worthwhile investment. There also remains a big opportunity for people-based advisory firms to support clients through a transition towards self-service. 

Currently, advisory firms mainly serve the largest clients, but it’s likely this will trickle down to the mid-market over time. Firms that combine their advisory services with a software offering, that blends in over time, are well-placed not just to guide clients through a transition, but service them beyond it. 

A great example of this is Evora Global – a leading sustainability consultancy for commercial real estate, which combines both ESG strategy and a growing software offering to meet the needs of different clients at various stages of development.

  • Demonstrating that ESG is more than a ‘nice to have’ is crucial to maintaining spend through a potential downturn

Beyond mandatory government requirements, there has been a massive growth in voluntary ESG-related spend in recent years – 54% of FTSE 100 companies now have an ESG committee at board level. The result of this trend has been high demand for ESG-related services. However, the challenge is ensuring companies continue to invest in ESG initiatives through a potential economic downturn.

It is vital that ESG services prove their value to clients and demonstrate ROI. Effective and practical ESG services are not simply box-ticking exercises but offer customers a genuine competitive advantage. This could include reducing operating costs, improving employee retention, and attracting talent in a competitive labour market, and creating a greater connection with customers. 

  • Defining a firm’s ICP (ideal customer profile) is crucial evolve business offerings with existing customers while attracting new ones

Western European companies currently outpace American companies on ESG, although the current administration’s policies may prompt that gap to close.

Equally, larger corporates tend to have more developed ESG strategies, but smaller firms are rapidly catching up. We have heard recent examples of public sector procurement initiatives that are now weighted 40% towards environmental impact and 60% towards quality and cost – a year ago that would have been unheard of. 

ESG offerings for the built environment need to determine what their Ideal Customer Profile (ICP) is, what challenges these customers face, and how this will evolve over the next few years. Equally, that approach needs to be combined with a longer-term understanding of where the next wave of customers will come from – i.e., a recognition that their ICP may change. This two-pronged approach can help companies to drive growth into the future. 

Turning buzzwords into actions with holistic benefit

Making the built environment more sustainable has been the major recent industry talking point. However, talk needs to be turned into action – genuine commitment and effective collaboration are the keys to success.

Tackling key commercial questions first is critical. By assessing the built environment’s current ESG position and using this to form practical plans, leaders across the sector can encourage sustainable investing and help to deliver the promised environmental and economic benefits – shaping the future to the benefit of all.

Access the piece published in Property Today here.