- Property Funds Association (PFA) held its 2022 Conference in Cairns last week
- ESG-driven changes evident with key players already committing to net zero targets
- However, can be a challenge building ESG into due diligence and capital expenditure forecasts
Issues surrounding Environmental, Social and Governance (ESG) in commercial property was a strong theme at the Property Funds Association (PFA) 2022 Conference in Cairns this week.
Notably, ESG was being driven by tenants, developers and even investors.
Quintessential Equity Executive Chairman Shane Quinn said ESG is the next ‘revolutionary change’ in office buildings.
“We see a revolutionary change in building materials, to reduce the carbon footprint of a created building on day one of its completion,” said Mr Quinn.
“Office property was changing pre-pandemic, but the push towards ESG buildings will accelerate and office buildings will increasingly need to demonstrate their commitment to ESG and adapt to ESG if they are to remain relevant.”
“To stay at the forefront, landlords need to understand that disruption is happening in all sectors and it’s a massive opportunity.
“ESG is also becoming very relevant in the industrial space. Developers and landlords need to understand the ESG needs of their tenant or risk getting left behind.
“New Buildings need to be transparent and authentic about what it stands for in its design and creation – if it doesn’t it will get found out.”
All stakeholders joining the party
KPMG Director of Property & Environmental Services, Rhonda Lenardon, noted that global regulators are driving greater focus on ESG and climate disclosures, while capital markets and corporates were also getting behind ESG.
“There has been a push toward ESG from both investors and consumers, as people want to invest their money where they know it will be responsibly used,” said Ms Lenardon.
“Corporates are also wanting to step up and push things further ahead. In Australian property we’ve seen companies including Lendlease and Dexus commit to net zero and, for example Mirvac, to net positive targets.
“This is a big commitment to tangible change, and will be influential on other parts of the commercial property sector.”
Ms Lenardon added that it was a challenge building ESG into both due diligence and capital expenditure forecasts.
“There is a push with acquisitions to include a sustainability assessment as part of the due diligence, to understand the building’s current state, where it can improve and the opportunity for energy efficient upgrades.
“We’re seeing an uptake in embodied carbon assessments for existing buildings. This helps to understand the true impact of demolishing, redeveloping or refurbishing a building on carbon footprint.
“There are times when knocking down a serviceable building and replacing with a 6 star Greenstar building may not be the most sustainable outcome.
She also added in the asset acquisition process it was becoming increasingly important to understand the other party’s record in social responsibility and governance.
“Parties are looking for alignment of values between the businesses, and they want to know what kind of accountability is in place, including processes for recording data which is assured and accurate.”