What do the ESG criteria stand for?

The three letters E, S, and G describe areas of responsibility related to sustainability in companies. E stands for environment and broadly refers to environmental protection and the climate neutrality of buildings. It also covers strategies for climate protection, the use of renewable energies, emission reduction, and the careful use of raw materials and energy—always with the goal of making buildings climate-neutral by 2050. The S stands for social and includes all social aspects: These include workplace safety, health protection, compliance with labor rights, fair working conditions, and the prohibition of child and forced labor. For example, when selecting new tenants for a property, care can be taken to ensure that sustainable business models are pursued. Looking at this in more detail, it could be a matter of the tenant wanting bicycle parking spaces or charging stations for electric cars. The last letter, G, stands for governance and encompasses all aspects of ethical corporate management. This includes issues such as the prevention of corruption, risk and reputation management, compliance, and the existence of an independent supervisory board. In summary, ESG criteria are about corporate social responsibility and sustainable and energy-efficient practices.

How the real estate industry and ESG are linked

As in other areas of the economy, ESG criteria also influence the real estate industry and ensure that sustainable construction and practices become established. However, sustainability is very complex in the context of the real estate industry and must be examined more closely and in detail in order to understand the interrelationships.

First of all, it is important to reduce dependence on fossil fuels such as gas and oil, as well as high energy consumption. This step can be achieved through renewable energy sources. This, in turn, significantly reduces climate-related risks in relation to investments. Scenario analyses can help with the transition to more sustainable construction.

Another important factor is the building materials used. Steel and concrete in particular are energy-intensive materials that can be used far beyond the useful life of a building. Recycling building materials that are no longer needed can therefore significantly reduce a building's carbon footprint.

Another aspect is the recording of building emissions in order to make CO2 emissions measurable and visible. This is a key challenge in the real estate industry, as emission data is often insufficient or non-existent. An impact valuation analysis can help to counteract this: this method makes the influence of greenhouse gases bound in the building visible.

In addition, investing in sustainable real estate not only has a positive impact on the environment, but also has a positive effect on the investment budget: sustainable financial products can be offered at improved terms . Private and institutional investors tend to make investments that qualify as green bonds, i.e., investments in environmentally and climate-friendly projects or real estate.

ESG for brokers

ESG criteria also apply to the advisory activities of real estate agents. For example, when selecting buyers and tenants, they can pay attention to aspects such as sustainability, climate protection, and ethical principles.Even before the property is let, the real estate agent can take a look at business and sustainability reports to find out about the ecological and ethical practices of the potential new tenant. The topic of green leases can also be addressed in this context. Furthermore, the agent can take technical sustainability into account when valuing the property. In order to stay up to date on the topic of sustainability and real estate and maintain their advisory function, it is advisable not only to engage with the topic on an ongoing basis, but also to participate in continuing education.

ESG for investors

ESG guidelines do not only affect brokers, but also investors. Private investors and investors must familiarize themselves with the EU building guidelines (EPBD) in order to be able to classify the consequences for properties with poor energy efficiency ratings. To this end, it is of course also essential to examine the property's renovation requirements.

In order to assess a property's ecological sustainability, investors can refer to a classification system known as the EU taxonomy.

The EU taxonomy is a catalog of criteria that defines sustainable economic activities in accordance with EU criteria. This means that key figures are defined and made measurable, revealing how a fund has invested. This allows investors, banks, sellers, and project developers to use clearly defined categories as a guide and classify how sustainable an investment is. This is particularly interesting for private owners when it comes to selling their property.

Sustainability, corporate social responsibility, and energy efficiency are major and important issues that also play a significant role in the real estate industry and will become increasingly important in the future. The ESG criteria in the real estate industry are intended, among other things, to make CO2 emissions from buildings visible and measurable, support the move to renewable energy sources, recycle building materials that are no longer needed, and offer sustainable real estate on better terms. The ESG criteria apply to brokers and investors alike and are the right step toward a greener future in the real estate world.