ESG Real Estate: An essential guide to ESG in the real estate and construction sector

In recent years, sustainability and social responsibility have gained unprecedented importance in the business world. Within the real estate and construction sector, the integration of ESG (Environmental, Social and Governance) criteria not only meets regulatory demands but also increases the competitiveness and profitability of projects. ESG, in simple terms, is a set of principles that ensure environmental sustainability, social responsibility, and transparent and ethical business management.

The real estate sector, responsible for a significant percentage of energy consumption and CO₂ emissions, is under scrutiny from regulators and investors seeking to reduce its environmental impact. In this context, applying ESG strategies becomes a priority.

ESG Real estate and construction: towards a more sustainable model

ESG criteria in real estate have driven the adoption of certifications. Some of the most important include:

• LEED (Leadership in Energy and Environmental Design): Promotes energy efficiency, the use of ecological materials and indoor air quality.
• BREEAM (Building Research Establishment Environmental Assessment Method): Evaluates the environmental impact of buildings in various areas, such as management, energy, transport, and materials.
• VERDE: A Spanish certification system based on the evaluation of the building life cycle.
• WELL: Focuses on the well-being of occupants through air quality, lighting, and thermal comfort.

These certifications reinforce the alignment of real estate projects with ESG principles, ensuring their viability and attractiveness to responsible investors.

How to apply ESG in the real estate sector?

The role of real estate developers in ESG implementation

Real estate developers play a key role in the transition towards a sustainable construction model. To integrate ESG into your projects, you can adopt strategies such as:

• Design based on circular economy principles: Reducing waste and promoting the reuse of materials.
• Digitalisation and energy modelling: Using tools like BIM and energy simulations to optimise design.
• Incorporation of renewable energies: Solar panels, geothermal, and aerothermal systems to reduce energy consumption.
• Modular and prefabricated construction: Minimises environmental impact and improves construction efficiency.

ESG for asset managers: responsible investment strategies

For real estate investors and asset owners, integrating ESG into their strategy means increasing the resilience and profitability of their assets. Key practices include:

• Implementing investment plans in assets to prevent them from becoming obsolete in terms of energy consumption.
• Implementation of Smart Buildings with IoT sensors to optimise energy efficiency and predictive maintenance.
• Setting energy consumption reduction targets and monitoring progress.
• Assessment of climate risks and adaptation of assets to climate change scenarios.

These strategies not only help comply with regulations like the EU Taxonomy but also make assets more attractive to investment funds seeking alignment with ESG criteria.

ESG glossary for the real estate sector

The integration of AI and blockchain in architecture is revolutionising both design and project management. On one hand, tools like FenestraPro and cove.tool use artificial intelligence algorithms to optimise the energy efficiency of buildings, allowing architects and engineers to assess the impact of different solutions on natural lighting, thermal comfort, and energy consumption from the early stages of design.

On the other hand, the implementation of blockchain in construction provides an immutable record of data, enhancing transparency and traceability in the supply chain. This is key for tracking the carbon footprint of materials, managing sustainable certifications, and generating more accurate reports.

How do the various European Union regulations on sustainability and sustainable finance connect with ESG (Environmental, Social, and Governance) criteria for real estate and construction? Below is an explanation of how the EU Taxonomy, the CSDR, the SFDR, and the EPBD relate to ESG and each other:

EU Taxonomy: The foundation for defining sustainable activities

The EU Taxonomy is the framework that classifies sustainable economic activities based on six key environmental objectives, including climate change mitigation and resource efficiency. In the real estate and construction sector, it is applied to define which buildings, renovations or materials meet ESG criteria.

Relation to ESG:

• E (Environmental): Determines which building investments are "green", such as the construction of nearly zero-energy buildings (nZEB) or retrofitting.
• S (Social): Indirectly impacts the accessibility of sustainable housing and thermal comfort.
• G (Governance): Requires companies to report clear information on the sustainability of their assets.

CSDR (Corporate Sustainability Reporting Directive): Transparency in sustainability

The Corporate Sustainability Reporting Directive (CSDR) obliges companies to disclose detailed ESG information about their operations, including the environmental and social impact of their real estate assets.

Relation to ESG:

• E: Requires reports on carbon emissions and the energy efficiency of buildings.
• S: Requests information on social impact and working conditions in the construction supply chain.
• G: Enhances the transparency and comparability of ESG information in the sector.

SFDR (Sustainable Finance Disclosure Regulation): Sustainable finance and real estate

The SFDR regulates the disclosure of sustainability information in financial investments, ensuring that ESG funds meet verifiable standards. For the real estate sector, it impacts how real estate investment funds classify their assets as sustainable.

Relation to ESG:

• E: It establishes criteria for a real estate fund to be considered green, based on the energy efficiency of buildings.
• S: It assesses the impact of investments on the community and access to sustainable housing.
• G: It requires investors to disclose sustainability risks in their real estate portfolio.

EPBD (Energy Performance of Buildings Directive)

The EPBD sets minimum energy efficiency requirements for new and existing buildings in the EU, thus promoting the construction of nearly zero-energy buildings (nZEB) and the decarbonisation of real estate.

Relation to ESG:

• E: It establishes standards for energy efficiency and emission reduction.
• S: It contributes to improving comfort and reducing energy poverty.
• G: It obliges governments and developers to comply with strict regulations.

Conclusion: An Integrated Framework for ESG in Real Estate

The future of the real estate sector is marked by the increasing integration of ESG at every stage of the life cycle of buildings, from design to operation. European regulations and investor pressure make its implementation not an option, but a necessity to ensure the long-term viability of projects.

The EU Taxonomy, the CSDR, the SFDR, and the EPBD form a regulatory ecosystem that drives sustainability in the real estate sector.

• For developers and asset managers: They must adapt their strategies to meet these requirements and access sustainable financing.
• For investors: These regulations offer greater clarity on which real estate assets truly meet ESG criteria.
• For the market: It encourages a transition towards more efficient and environmentally responsible buildings.

The implementation of ESG strategies in real estate is not just a trend, but a necessity for the sector's evolution. Among its main benefits are:

• Greater appeal to investors and sustainable funds.
• Reduction of operational costs thanks to energy efficiency and the use of sustainable materials.
• Compliance with stricter regulations on sustainability and social responsibility.
• Improvement of the quality of life for occupants and increasing the value of real estate assets.

Various projects have demonstrated how the integration of ESG enhances profitability and sustainability in real estate. An example is the 22@ District in Barcelona, where buildings with LEED certification and sustainable mobility strategies have been implemented, becoming a model of urban regeneration aligned with ESG principles.

The key to success lies in innovation, digitalisation, and a commitment to sustainability. Companies that adopt ESG strategies will be better prepared to face the challenges of climate change and the new demands of the real estate market.