Sustainability Trends in the Real Estate Sector: Market Forces at Work

A recently published PwC review identifies a number of business factors that are heightening attention to sustainability in the real estate sector. Among the key drivers are:

• An increasing frequency in inquiries from investors such as APG Investment, CalPERS, and CalSRS, demanding real estate environmental, social, and governance (ESG) performance data

• Ranking and rating systems that compare real estate funds’ ESG metrics, for example, GS Sustain, TruCost, Sustainalitics, EIRIS, Newsweek, and a new collaboration under development by the FTSE Group, the National Association of Real Estate Investment Trusts (NAREITs), and the U.S. Green Building Council (USGBC)

• For publicly traded real estate funds, shareholder proposals and potential exchange listing requirements

• A growing number of state and municipal laws that require property owners to disclose or benchmark energy performance in buildings

• Expanding participation in voluntary ESG reporting programs, for example, the Carbon Disclosure Project (CDP) and the Global Real Estate Sustainability Benchmark (GRESB). GRESB’s prominence is on the rise; its standards are rigorous and cover such elements as sustainability strategies and policy, energy, waste, and water efficiency goals, and tracking systems that measure performance against those goals

• Demand from commercial tenants, including the federal government, which has a GSA-based requirement of a minimum of LEED Silver certification for all federal leases of new construction of 10,000 square feet or more

• Federal, state, and local tax credits and incentives for energy efficiency retrofits and investments

Savvy asset managers should be thinking of ways to incorporate these trends into their planning and proactively use them for competitive advantage.

Jane C. Luxton, Esq.

Read more at Sustainability-Counsel.com from Pepper Hamilton LLP's Sustainability, CleanTech and Climate Change Team.

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