Savills predicts that by 2026, green lease agreements will be the standard in the real estate industry.
Savills, a global real estate services provider, recently held a discussion in Prague on the topic “Future of Green Leases”.
Together with other real estate experts, Savills explained why it is important for tenants and landlords to start implementing ESG strategies into their leases. They also stressed the importance of setting up ESG reporting.
They pointed out that, by 2024, companies in the EU will be mandated to report on their sustainability practices, and banks are already asking for detailed ESG reports for giving out loans.
“Obligatory reporting of non-financial data is required by EU legislation and data from the so-called sustainability report will be mandatory from 2024. In practice, we are increasingly seeing cases where, if a company wants to get a loan, it has to provide comprehensive ESG reports to the bank.”, says Monika Kajanková, Real Estate Partner at Dentons,
This shows why real estate businesses need to get serious with ESG and green leases.
What is ESG: Environmental, Social, and Governance?
ESG criteria are used by investors, analysts, and other stakeholders to evaluate a company’s commitment to sustainable and responsible business practices.
Companies that perform well in these areas are often seen as being more socially and environmentally responsible, which can contribute to long-term financial success and positive societal impact.
Here’s a brief breakdown of each component:
- Environmental (E): This aspect focuses on how a company’s activities impact the environment. It includes considerations such as carbon emissions, energy efficiency, waste management, pollution, and other factors related to ecological sustainability.
- Social (S): The social component looks at how a company manages its relationships with people, both inside and outside the organization. This involves issues such as labor practices, employee relations, diversity and inclusion, community engagement, and human rights.
- Governance (G): Governance assesses the company’s internal systems and structures. It includes factors like corporate governance, ethical business practices, transparency, accountability, and the overall quality of leadership and management.
Collaboration Between Tenants and Landlords is Key
Pavel Novák, Head of Office Agency at Savills, stressed how collaboration between landlords and tenants is crucial for implementing successful green leases.
He explained that some tenants’ demands may not align with sustainability goals, making it hard to execute corporate ESG strategies. In some cases, landlords overlook ESG reporting, an important part of tenants’ non-financial reporting.
” For a real positive impact on the environment and society, a change in attitude and mindset is essential for an ESG strategy to have an effect”, says Pavel Novák.
Property Landlords Already Embracing ESG
Eva Nykodymová, EHS and Environmental Manager at Skanska, one of the largest construction and development companies in the world, expressed their commitment to helping tenants meet ESG standards.
“As a developer, we are responsible for the carbon impact of our projects, so we carefully explain the requirements to meet ESG standards to each tenant. This way we help the tenant to meet their sustainability targets. We place emphasis on efficient use of the building and recycling. We also have a list of contractors who can already operate within the set sustainability rules. Unfortunately, there are still many manufacturers on the market who are not ready,” adds Eva Nykodymová.
Opportunities for Greener Properties
According to Jan Jurčíček, who heads Building and Project Consultancy at Savills, a significant issue in building energy performance is the inefficiency of heating, cooling, and air conditioning systems due to improper regulation.
Simultaneously, it is quite common for one part of a building to be heated while another is exposed to sunlight all day, causing cooling. This presents an opportunity for more effective building operations in the future.
Jurčíček also notes that although buildings are generally prepared for ESG (Environmental, Social, and Governance) standards, landlords often lack the proper processes. While they have the necessary data, they struggle to provide relevant reports to tenants.
“I frequently see that the building is generally ESG-ready, but landlords do not have the right processes in place. They have the data they need, but they do not know how to provide relevant reporting to tenants.”, says Jan Jurčíček.
For more information about Savills, visit savills.com.