Social sustainability in real estate investments
Taking a holistic approach to social sustainability in real estate investments
In recent years, ESG has become a key issue in many industries, including the real estate sector. As a consequence, ESG criteria are increasingly being taken into account in real estate investments. However, since the adoption of the Paris Climate Agreement in 2015 at the latest, both regulators and the general public have mainly been focusing on the “E” in ESG. In the EU, buildings are responsible for around 40% of energy consumption and around 36% of carbon emissions. Therefore, the real estate sector is an important lever for achieving the climate targets set in the Paris Agreement.
The “S” and the “G” in ESG (i.e. social and governance-related issues) are given far less prominence. Nevertheless, these two ESG dimensions are also playing an increasingly important role in the evaluation of projects and portfolios, owing to increasing price trends and the growing demand for special-purpose properties. The upwards price trends are driven by multiple factors, including higher interest rates (resulting from the challenging macroeconomic situation), high construction costs (due to inflationary pressure as well as stricter regulation) and last but not least, the overall growing demand for housing. More and more dedicated, type-of-use-specific properties, such as assisted living facilities, day care centers, hospitals or barrier-free apartments need to be developed and modernized to cater to the needs of an aging population and to ensure the well-being of all people, the awareness of which has, fortunately, increased in recent years.
Due to the lack of a regulatory framework, very few real estate project developers and investors have been taking a holistic approach to S&G criteria so far. However, such investments may offer advantages and interesting opportunities.
In this publication, GSK and zeb have joined forces to analyze the current state of S&G regulation in the context of real estate investments – from both a legal and a business perspective – as well as to identify potential benefits, challenges and solution spaces.
