2022 was a banner year for real estate ESG. Decarbonization went mainstream. Data became an imperative. And the U.S. passed its most sweeping climate legislation to date, following a multi-year frenzy of regulatory activity at the state and local levels.
As we look ahead to the new year, what are the key market dynamics that real estate ESG professionals should prepare for? We’ve rounded up the top 5 real estate ESG trends that we think will have an impact on the industry in 2023.
We expect that 2023 will be the year that owners begin to seriously confront the reality of upcoming GHG targets, whether the targets in question are self-imposed or externally-mandated.
The pressure will likely come from several fronts. The first will be investors applying additional scrutiny to the carbon performance of their portfolio companies. As MSCI puts it, “climate-target credibility is likely to become the next frontier for institutional investors aiming to decarbonize investment portfolios…We have observed an increasing number of companies setting climate targets, including net-zero emission targets. Yet questions remain as to whether these targets are achievable.” Investors have already long been asking real estate companies to report energy and emissions, disclose to ESG benchmarks, like GRESB, and commit to ambitious public targets. But merely being able to report a baseline or claim a future carbon target – once heralded as ground-breaking stuff – is table stakes for real estate in 2023. With the SEC’s climate ruling looming in 2024, institutional investors will soon have to answer for the carbon footprint of their overall investments, including their real estate portfolio companies, as the transition risk moves up the chain.
With that in mind, the second front will be regulatory. Key interim deadlines for many building performance standards are now only a few years off, which means real estate organizations will need to get serious about marshaling their assets towards mandatory energy and carbon reductions. A recent study by the NYC Comptroller’s office found that “a large portion of buildings (subject to NY Local Law 97) will need to complete large-scale retrofits to comply with the law by 2030.” This will require significant advance legwork (and access to data) – and close coordination between ESG, asset management, and other departments – to manage and update existing capital plans, take advantage of available government rebates and incentives, and measure and report progress along the way. With critical reporting dates looming, there isn’t a moment to lose.
Aquicore can help you benchmark your portfolio with ENERGY STAR Portfolio Manager and adhere to building performance standards and local ordinances. Get in touch to learn how we can help you stay abreast of changing regulatory requirements and measure and report progress on mandatory reduction targets.
With an eye towards the above, another key trend we expect to see surge in 2023 is investment in sustainable infrastructure. The popularity of onsite solar generation and electric vehicle (EV) charging stations has already been on the rise, and we anticipate that demand will remain high in 2023, as 2025 and 2030 carbon targets edge ever closer and owners of office portfolios seek to entice tenants back to work.
Increased demand for sustainable infrastructure is driven by a number of factors. These include the declining costs of solar panels and EV charging technology; the growing popularity of EVs with consumers more broadly; the availability of incentives, rebates, and other financing vehicles; and the attractiveness of these “green” amenities to prospective tenants that can drive rents higher. Plus, onsite solar and EV charging are surefire decarbonization strategies that can variously take a bite out of scope 1, 2 and 3 emissions, depending on building characteristics and the organization's broader value chain. Finally, onsite renewable generation can defray costs on utility bills, a meaningful benefit as electricity rates continue to rise nationwide. For all of these reasons, sustainable infrastructure will remain a sound (and popular) investment in 2023.
Considering onsite solar deployments across your portfolio in 2023? We can help you acquire the data you need to qualify assets and measure ROI and payback in real time. Get in touch with us here.
With more and more real estate organizations seeking to bolster their ESG programs, and with the practice of ESG itself becoming increasingly sophisticated, demand for ESG talent is at an all-time high (and showing no signs of slowing down). There is fierce competition for knowledgeable professionals who can help organizations integrate ESG considerations into their business processes, stay abreast of regulations and reporting requirements, and support the challenging technical work of reducing energy and emissions across a portfolio.
While the talent crunch no doubt has roots in the more general recent ESG boom, there is also the fact that ESG contains a wide and disparate range of disciplines. This makes experienced, multi-skilled professionals highly sought-after. As Marta Schantz of the ULI puts it, “no one person can be an expert on all the different aspects of ESG.” ESG can variously involve topics from finance, legal compliance, marketing and communications, energy engineering, development and construction, carbon accounting, data analysis, risk management, corporate social responsibility, and investor relations (among other things), all of which involve discrete skill sets. With so many functions to account for, it can be challenging to build a well-rounded program from the ground up when there may only be budget for a handful of personnel. And to compound things further, ESG itself remains an evolving field, with many focus areas (such as carbon accounting methodologies and net zero) still actively being debated and defined.
In 2023, we recommend evaluating your hiring goals against your business objectives and corporate targets. Can you enhance existing resources even as you seek to add new ones? There are many industry learning opportunities (like NAREIT’s annual ESG JumpStart program) that can aid in professional development. Additionally, a good technology partner backed up by experienced human support (like Aquicore) can be a force multiplier for smaller ESG teams.
As we head into 2023, the real estate industry faces a variety of economic headwinds, including soaring electricity rates, the changing nature of office work, the financial burden of regulatory compliance, the rising cost of capital, and, ultimately, the looming specter of a recession. With these factors in mind, we expect to see real estate organizations place renewed emphasis on managing operating costs and making shrewd decisions at the asset level in 2023.
At the highest level, reducing operating costs can help improve financial performance, competitiveness, and sustainability – all important considerations when heading into a period of potential economic uncertainty. Lowering bottom-line operating costs ensures higher revenue and NOI, which enhances asset values and can help owners and asset managers fund improvements, pay off debt, and generally deliver a stronger financial return to investors. Reducing operating costs may also help improve an asset’s overall market position; with many properties vying for tenants, who are also not immune to economic uncertainty, the promise of lower expenses can be a key advantage in maintaining high occupancy rates and generating consistent income. Finally, with electricity rates on the rise, driving down costs can correlate with improved energy and emissions performance, which can in turn help assets qualify for certifications and incentives that can further enhance their value and attractiveness to tenants while shoring up the bottom line.
Pro tip: Advanced analytics software like Aquicore automates the work of monitoring and analyzing energy performance data to find savings opportunities. Our platform helps you maximize efficiency across your portfolio and enables you to take advantage of every opportunity to reduce costs. Learn more here.
With the four above trends in mind, how can real estate organizations mitigate risk and ensure they are well-positioned to fulfill their ESG commitments in 2023? One answer: focus on acquiring high-quality energy data across their portfolios. In 2022, we saw a major drive to increase portfolio data coverage – including from traditionally harder-to-reach asset classes – and we expect to see owners double-down in 2023 due to all the dynamics discussed above.
The reasons for the push to acquire data are manifold, and, at this point, widely-known. Good energy data ensures you can measure and make progress towards energy and carbon targets while staying on top of annual reporting needs and benchmarking requirements (by definition, you can’t benchmark with ENERGY STAR Portfolio Manager without access to whole-building utility data, nor can you submit to GRESB and other voluntary ESG disclosures). Data can help you make smarter investment decisions about onsite renewables and other value-added energy services, enabling you to quantify the impact and fully recoup the benefits down the road. Data empowers lean ESG teams to make better decisions with finite resources, and can also reveal opportunities to optimize energy usage and cut costs.
But in spite of all these benefits, access to high-quality data remains elusive for many ESG professionals seeking to measure, report and improve sustainability performance and drive further investment, with recent studies finding that critical issues with data accuracy, data completeness, and data timeliness persist.
If portfolio energy data is a business challenge for you, get a head start in 2023. Our team of experts would love to learn more about your data concerns and help you build a plan to achieve 100% coverage in time for key deadlines. Get in touch with us here.