Building a sustainable real estate industry

04 May, 2022

Sustainable construction and buildings are not new issues for the real estate sector. What is new is the momentum that has picked up around the topic of sustainability in recent years. In terms of the impact of real estate on climate change, buildings represent a considerable share of energy consumption—and hence, emissions. It is estimated that the Irish built environment accounts for over 30% of the country’s total greenhouse gas emissions, 20% of which comes from operational activities housed in buildings (i.e. electricity, heat and industrial production).The remaining 10% is created by embodied carbon, which means carbon associated with the construction of the built environment.

If we also consider emissions from transportation—including logistics, roads and airports—the infrastructure side of real estate may be further implicated. Curbing these emissions is therefore crucial in our journey towards climate neutrality.

Abstract photo looking up at the sky through some tall office buildings

ESG in the real estate industry

Since the issue of sustainability and climate change is particularly complicated in the context of real estate, some key considerations include:

  1. Climate change and energy transition
    Due to high levels of energy consumption and a strong dependence on fossil fuels such as oil and gas, real estate has a critical role to play in the economy’s journey towards a sustainable future. There is also growing pressure to reduce carbon emissions from buildings. Actively managing the energy transition away from fossil fuels to sources of renewable energy will significantly reduce the climate-related risks for investors. It is still not clear what form this energy transition will take but with the help of scenario analysis, different transformation routes can be assessed and strategies developed for the various scenarios.

  2. Circular economy
    A significant portion of CO2 emitted by buildings relates to the construction materials used. Concrete and steel are energy-intensive, robust building materials that can outlast a building's normal useful life. A building's CO2 emissions can therefore be significantly reduced if building materials that are no longer required are recycled, in keeping with the concept of the circular economy.

  3. Impact valuation
    As buildings are responsible for significant emissions, they have a strong impact on our climate. Yet, the data on emissions by buildings is often not sufficient or available. As a result, real estate companies usually have to make assumptions to appropriately quantify emissions, so that they can correctly adapt their buildings’ unique features. Impact valuation makes it possible to quantify how the investments contribute to rising temperatures through emissions, while also gauging the influence of greenhouse gases trapped within the building.

  4. Sustainable finance
    Retail and institutional investors are placing greater store in investments that satisfy certain non-financial standards. Real estate investments - which, for instance, are suitable for green bonds - can combine improved terms and conditions with a positive impact. Green and social bonds have become increasingly popular among real estate owners to fund eligible green projects and assets, with a specific environmental, sustainable and/or social purpose. Examples include low carbon buildings and healthcare assets for vulnerable people in need of special care.

  5. ESG in deals
    Environmental, social and governance (ESG) criteria also need to be considered in the acquisition process. Those who address these issues as part of their ESG due diligence are able to identify interesting investments on the one hand, and collect relevant data when a property is acquired on the other. Affording ample consideration to ESG criteria will enable real estate investors to ensure that they meet the needs of various stakeholders and continue to add value to their investments. Embarking on appropriate ESG initiatives will improve society’s perception of the company, build competitive positioning and enhance market value. To enhance stakeholders’ awareness of such initiatives, they must be appropriately communicated and documented - in a company’s sustainability report, for example.

The four key actions to take now

Companies that take a strategic ESG stance early on will benefit in the long run. Here are four actions real estate companies can take now:

  1. Ensure your business model and strategy are aligned with your ESG goals and commitments.
  2. Adopt an integrated approach, ensuring that ESG is central in all business planning and decision-making processes.
  3. Know what your stakeholders - such as customers, investors, employees and the public - expect from you.
  4. Understand current and upcoming regulatory requirements, and how they may impact your business.

We are here to help you

The impetus for real estate businesses to address ESG issues and opportunities will continue to grow, spurred by investors, shareholders, governments, policymakers, employees, suppliers, customers and citizens more broadly.

Integrating ESG and sustainability standards and regulations with your business is a complex process. Having already supported leading real estate companies on their ESG journey, we can also support you. We have the knowledge and experience, both locally and through our global network of over 800 sustainability specialists, to help you address these challenges. Contact us today.

Contact us

Joanne Kelly

Partner, PwC Ireland (Republic of)

Ilona McElroy

Partner, PwC Ireland (Republic of)

Sinead Lew

Partner, PwC Ireland (Republic of)

Tel: +353 87 779 1373

Julia Fironova

Manager, PwC Ireland (Republic of)

Follow PwC Ireland