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Real Estate ESG scan: Making performance measurable at building level

Environmental, social and corporate governance (ESG) is now an integral part of the investment world. When selecting properties, investors are placing more emphasis on the factors of people and planet as well as profit. And it’s clear why: a sustainable building is better equipped for the future and more attractive to tenants, and has a higher market value and lower running costs. To make all these factors measurable, SGS Search is introducing the Real Estate ESG scan.

“For some time now, investors looking to purchase new properties have been looking at environmental and social aspects as well as profit,” explains Freek Langeraap, Business Developer at SGS Search. “In recent years, it has become more and more common for clients to ask us to incorporate ESG considerations into technical due diligence (TDD) inspections. To deliver a consistent service, we decided to develop our own standard with a wide range of sustainability parameters that can be assessed at building level.”

“Property investors are placing increasing importance on people, the planet and society in their investment policy”

Focusing on people, the planet and society

According to Langeraap, the focus on ESG aspects in property investment is partly a consequence of the objectives set out in the Paris Agreement and the resulting legislation. “The real estate sector has a large footprint in areas such as energy and material consumption. This also means that the sector has the opportunity to make a major positive impact and that its use of resources is subject to scrutiny.”
“But this is definitely more than just an obligation. Property investors are placing increasing importance on people, the planet and society in their investment policy. This is also reflected in the growth of impact funds. These kinds of investment funds come coupled with ambitious targets for energy consumption or the social impact of buildings, for example. All of these factors can be measured with the ESG scan.”

ESG

Specific parameters at building level

An ESG scan helps real estate investors to convert their sustainability, health and environmental achievements and ambitions into a specific, measurable action plan. “In this scan, the main ESG topics are translated into inspection parameters at building level. Through a combination of desk research and a follow-up inspection, we calculate the ESG score of the building in 14 main areas and for over 100 different parameters.”
The building is primarily scored on environmental and social aspects. Governance is always managed at organizational level. “Running a building sustainably is about much more than simply implementing measures to make it more sustainable,” explains Langeraap. “Buildings also have a social function for the people who work in them or live in the surrounding area. This is why the ESG scan not only measures energy consumption, water usage and environmental impact, but also safety, local amenities and, for example, sports facilities.”

“An ESG scan helps property investors to convert their sustainability, health and environmental achievements and ambitions into a specific, measurable action plan”

Final building score and insight into performance

“The result of the ESG scan is a final score for the building and an insight into its performance in each of the areas. With this information, the client can decide whether the property is an attractive investment opportunity and whether it fits in their property portfolio. The ESG score can also be used in the annual sustainability report.”
“Our ESG scan ties in with the GRESB and BREEAM benchmarks that are widely used in the real estate sector,” continues Langeraap. “An ESG scan is a little less detailed, but the result provides a good indication of the potential GRESB or BREEAM score.”

Factoring ESG into investment decisions

ESG scans also incorporate advice on topics such as additional investigations and improvement work that needs to be undertaken. “This advice can be taken into account when planning maintenance and major renovations. By paying closer attention to the impact on ESG when making investment decisions, investors can strike a better balance between financial results and environmental, sustainability and social interests.”