Real estate tsunami. ESG regulations affect the industry

The implementation of the Sustainability Reporting Directive (CSRD) means another tsunami for the real estate market, according to investment expert Radosław Jodko. ESG reporting, he reasoned, should prompt building owners to make technical changes to monitor utility and waste consumption and, in the long term, result in savings for tenants.

EU member states have been obliged to implement the CSRD imposing sustainability reporting obligations on companies by 6 July 2024. Polish legislation implementing the directive, has only passed the consultation stage and so is still being processed. Other EU countries are also late.

"The Reporting Directive has been known about since 2023, as have the European ESRS reporting standards, so the real estate industry has also been adjusting and preparing for them for some time now. It is good that it has not escaped notice that the CSRD is also important in the rental market. Because the carbon footprint of the buildings in which tenants conduct their business will also have to be reported. Itbecomes a challenge to collect data, and failure to do so will be punishable by criminal liability," recalls Radosław Jodko, an investment expert and property market specialist with RRJ Group.

ESG in the commercial real estate sector

Real estate is responsible for 40 per cent of greenhouse gas emissions worldwide. They are therefore among the leading industries that contribute most to climate change. This is why the EU has made many changes to the law and requirements in the real estate sector in 2023. Among the most important were the revised Energy Performance of Buildings Directive (EPBD) and the revision of the Energy Efficiency Directive (EED) or the Renewable Energy Directive (RED III); carbon tax requirements for the import of selected materials into the EU came into force.

"We have a veritable tsunami of legislation and requirements that not only need to be known, but tenants should also take them into account when choosing a location for their premises. The challenge today becomes the appropriately detailed and transparent collection and monitoring of data on utility consumption and waste," points out Jodko. "However, the collection of this data and its analysis should ultimately result in savings or even a reduction in the charges incurred," he adds.

Reporting obligations in the stakeholder chain

The ESG Reporting Directive means that 50,000 companies in the EU and 3,500 companies in Poland will have to report on their environmental and community impacts and management standards.

But, as Jodko points out, reporting obligations in the rental market mean much more.

"Improving the energy efficiency of buildings is one of the key tasks, but beyond retrofitting, it is the issue of data collection and analysis that becomes no less important. Only with the first reports and in practice will it become clear how ready building owners are for this. It is a known fact that if tenants request actual consumption data for internal ESG reports, landlords will have to make such data available, and this means in many cases changing measurement systems. All this will also translate into a wave of negotiation of new lease rates," enumerates Radosław Jodko, investment expert and property market specialist at RRJ Group.

"We probably do not yet fully realise how big a revolution awaits us and how much only the reports for 2024 will show the level of preparation for these changes," Jodko concludes.