Do banks properly assess ESG requirements for shopping centres?
As sustainability standards tighten across Europe, shopping centre owners and tenants are questioning the true impact of banks’ ESG (Environmental, Social, and Governance) requirements on retail real estate. According to the Association of Polish Employers of Trade and Services (ZPPHiU), landlords are increasingly imposing costly modernization demands under the guise of ESG compliance—often passing these costs onto tenants, despite little evidence of environmental or operational benefit.
“Banks play a key role in financing green investments, but it’s unclear whether they are verifying if these investments are truly ethical, rational, and effective,” said Zofia Morbiato, Director General of ZPPHiU. She warned that some landlords are using ESG mandates to justify expensive upgrades that serve more to boost property valuations than to improve environmental outcomes or customer satisfaction.
Among the controversial measures are requirements for tenants to replace fully functional storefronts or fixtures solely to meet new aesthetic or material standards. “It raises the question—should the perceived ESG value of a shopping centre be tied to the type of glass in tenant shop windows?” Morbiato asked.
A recent KPMG report, Property Lending Barometer 2024, underscores the growing role of ESG in commercial real estate lending. The study found that 75% of surveyed banks in Central and Eastern Europe, including Poland, the Czech Republic, and Hungary, now incorporate ESG criteria into their lending decisions. For many banks, failure to meet these standards can result in loan rejection. “Investors are increasingly walking away from projects that don’t align with ESG expectations,” noted Monika Dębska-Pastakia, Associate Partner at KPMG Poland.
However, research shows a disconnect between landlords’ ESG-driven renovations and consumer priorities. According to a study by Omnisense, shopping centre visitors care more about practical amenities—such as clean, free, and accessible toilets (cited by over 85% of respondents), clear signage, parking availability, and store selection—than about the type of flooring or visibility of ceiling installations.
Meanwhile, shopping centre footfall is declining. Proxi.cloud data for 2024 shows a 3.5% drop in visits and a 3.1% decline in unique visitors year-on-year. UCE Research and Proxi.cloud also report a 7% fall in customer traffic during this year’s winter sales compared to 2023, driven largely by e-commerce growth and evolving brand strategies.
ZPPHiU argues that while ESG requirements can add long-term value, they should not burden tenants with unjustified costs or renovations. Under current EU regulations, ESG obligations primarily apply to property owners and require them to report environmental impacts—not to mandate immediate modernization at tenant expense.
Morbiato called for a collaborative approach to “green annexes” in lease agreements, urging landlords and tenants to jointly define fair and transparent standards. “ESG policies should balance responsibilities and deliver tangible benefits to both parties—not just increase operating costs while offering unclear returns to tenants,” she emphasized.
While landlords tout ESG measures as tools for cost savings, risk reduction, and innovation, tenants are demanding proof. “We keep hearing promises about optimization and benefits, but we’re still waiting for concrete examples and transparent reporting on how these initiatives translate into actual savings,” Morbiato said.
As sustainability becomes an integral part of commercial real estate finance, both landlords and tenants are calling on banks to ensure that ESG-driven investments are not only compliant on paper, but also meaningful in practice—delivering genuine environmental outcomes without imposing disproportionate costs.
Source: ZPPHiU
