On October 28, 2021, Colliers’ ESG: A Tipping Point EMEA Report estimated some EUR 7 trillion may be needed to retrofit buildings in Europe to comply with emerging ESG requirements.
“This retrofitting cost challenge needs to be spread over the next 25 years if we are to aim to hit Net Zero, but to put this in context, it equates to the typical annual volume of investment activity in Europe – around EUR 300 billion,” commented Colliers Director and Head of Research EMEA Damian Harrington. “It remains to be seen who will pick up or share the tab for these enormous retrofitting costs – investors, owners, governments, or society as a whole. But what is already clear is that the transition will create a wide array of obligations and new investment opportunities in effectively mandating the upgrading of properties worldwide.”
One of the main takeaways of the report was the need for clarity and cohesion on standards to advance sustainability in the property sector. It highlights the fact that no one set of reporting frameworks has established itself as the accepted worldwide benchmark for ESG performance, making it very challenging for real estate investors to predict future requirements and liabilities.
While the EU’s Sustainable Finance Disclosure Regulation was enacted this year, having a direct impact on the investment world, the report notes that emerging regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD), are poised to provide both greater clarity and new challenges. The CSRD is expected to come into force in 2023 and is initially geared to a company’s size, but nearly all commercial real estate companies will be expected to comply with it.
According to the report, the main areas of priority for investors should include:
- Making a board-level commitment to ESG and giving it a permanent place on the agenda, backed by training for all staff
- Evaluating the organization’s ability to deal with new regulatory challenges across the value chain
- Assessing the ability of systems to capture and process the more detailed ESG data likely to be required by emerging standards
- Building capacity to evaluate ESG-related risks and strengthening audit controls