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More interested in green risk

The ESG factor

Investors putting their money into property are becoming more interested in environmental, social and governance (ESG) factors - the list of risks which they are increasingly using to measure the sustainability and ethical impact of their investments.

Environmental factors include climate change, environmental damage and resource depletion; social factors include diversity and health and safety, and governance factors include executive pay, board diversity and tax.

In 2017, 850 property companies and funds took part in the Global Real Estate Sustainability Benchmark Real Estate Assessment which allows investors to compare the sustainability performance of their assets - and make decisions based on that data (see The next step ).

The public are also interested. The popularity of initiatives like the WELL building standard certification scheme, which has more than 750 projects signed up to it, is said to be largely due to individuals wanting to work in environmentally friendly buildings.

So what?

If investors are much more likely to put their money into buildings and property portfolios that possess positive ESG factors, there will be an impact along the chain.

Tip. If you’re a landlord or you let out part of your premises, it will stand you in good stead to focus on the energy efficiency performance of your buildings to make sure they are at least up to the minimum standard.

If landlords aren’t bothered about ESG issues, they may not be taking appropriate action on more basic, economic or reputational issues, therefore putting investments at risk.

Good news?

If you’re renting a property then the trend for an increased focus on ESG issues could be good news, particularly if the building is inefficient and costly for you to run and operate.

Tip. Get in touch with your landlord and ask what plans they have to make your building more attractive and energy efficient. One of the most cost effective moves is to install more efficient lighting.

Reminder. The minimum energy performance standards that came into force on 1 April 2018 mean that landlords are not allowed to let properties that have a rating of less than “E”.

Note. There are a number of policies and regulations to encourage property owners to take action because they will have to report on their ESG performance. These include the UK Corporate Governance Code , the EU Non-Financial Reporting Directive and the UK Companies Act 2006 . However, these usually only apply to large companies, so depending on your landlord they might not be applicable.

For a link to the Global Real Estate Sustainability Benchmark Real Estate Assessment, visit http://tipsandadvice-environment.co.uk/download (EN 13.01.02).