Resilient RE: Zero in on Your Net Zero Goals

June 4, 2022

By Anshuman Magazine

Resilient Real Estate_Zero in on Your Net Zero Goals

With ESG (Environmental, Social, and Governance) goals taking the front seat in the Indian corporate ecosystem, organizations are now going green to address the alarming global concerns and shifting investor interests. Further, as the COVID-19 pandemic prevailed, organizations worldwide realized its importance for creating value in the long run. Severe weather mishaps and the COP26 conference sped up the adoption of ESG in the corporate world, and global organizations came together to make a difference.

For those in the CRE industry, the need to imbibe ESG principles is not just a moral imperative but a fiduciary responsibility. In the past few years, we have realized the potential of real estate in facilitating green transformation. The Union Budget 2022 of India emphasized green development via green bonds, developing EV infrastructure, and efficient city planning.

Indian Real Estate is headed towards the ESG transformation…

The past decade saw a major spike in green development as the certified green stock in India grew by 177% since 2011. This indicates that the Indian real estate sector is becoming more aware of its responsibility towards ESG principles and moving rapidly towards imbibing sustainability in its assets. Government initiatives fueled the trend by incentivizing developers & asset owners for green-certified projects.

As a result, urban cities seem to lead the transformation with NCR and Hyderabad now accounting for 44% of their total office stock as green certified, followed by Chennai, Mumbai, and Pune at 37%, 16% & 15%, respectively. One region that stands out is NCR, which is setting new benchmarks with its entire SEZ office stock being certified green.

Organizations are committing to Net Zero and adapting ESG

We might be amidst a Net-Zero wave where organizations are committing to sustainable practices to bring down their carbon emissions and go green. Major Indian occupiers are now committing to Net Zero, and this trend has the potential to impact their real estate decisions as they strive to embrace green development in every way possible.

While they are embracing the ‘Environmental’ aspect of ESG in every way possible, another recent shift is their inclination towards the ‘Social’ and ‘Governance’ factors, as wellness takes the front seat in the post-pandemic scenario. The adoption is becoming eminent as touchless building features, good air quality, ventilation, climate risk profiling, use of renewable energy, health & wellness and DEI seem to be the top priorities of occupiers in real estate decision making.

Investors follow the green path with sustainable initiatives

Investors continue to imbibe ESG metrics in their strategies, driven not only by a need to comply with regulatory requirements and environmental protection regulations but also to preserve future asset value and enhance brand image. According to the latest CBRE research, some of the key considerations of real estate investors today are energy saving/net-zero goals, green rental premium & brown rental discount, effective risk & cost management, green construction materials, and ESG benchmarking & reporting, CSR and more.

Is there a premium for RE developers?

ESG adoption by organizations is making a difference in society, but the concern remains whether there is a premium for developers? As developers incorporate ESG policies, it increases their potential to fetch higher rental premiums and sale prices for their assets. In many global markets, the gap between green and brown rental discounts has been widening, thus creating a better business proposition for building more sustainable and liveable spaces. It also indirectly lowers their long-term costs by reducing climate risks, and thus, the associated capital expenditures that come along. 

Also, ESG improves financial performance by maintaining a good public reputation, which helps the firm to retain talented employees for the long term. This goes a long way in safeguarding businesses from regulatory processes and speeding up approvals and licensing procedures, as the ‘G’ aspect is more transparent for governing authorities.

ESG is the only way forward!

As the focus on ESG implementation increases, CRE stakeholders need to understand, improve, and leverage their performance to drive value and sustain a competitive edge in the market. With sustainability becoming the center of urban development, the Indian real estate sector is all set to transform.