_Identifying ESG opportunities for your business: occupier and landlord perspectives

Compliance and beyond: the starting point

ESG opportunities often begin with risk mitigation, which is delivered through compliance measures and ensures that buildings operate safely and are available for use. However, ESG is much more than risk mitigation now. ESG can be considered as an opportunity to increase leasing velocity, increase rental values and building values, and align with the occupier’s own ESG targets.

The opportunity can further exist to demonstrate the energy performance of the asset, which can be a USP for the asset owner if it’s highly efficient. That can also increase the attractiveness of the assets for occupiers as a highly efficient building, which will also likely have lower energy costs.

Understanding energy and utility consumption becomes fundamental to achieving true sustainability, surpassing traditional metrics like the EPC rating. This involves looking at the macro themes and goals, cost certainty, risk management, and integrating ESG factors into property evaluation.

Data-led sustainability

Data is significant not just for compliance reasons but also for holistic sustainability, demonstrating actual performance. Data is an essential pillar for pivoting into various areas related to ESG. The challenge is not just in setting up compliance, safety, and basic building functions but in obtaining a comprehensive data profile that enhances the commercial nature of a property.

Transparent data sharing is vital, especially in scenarios where occupiers might not be willing to share data or where landlords are charging utilities based on square footage rather than usage. Automatic, half-hourly metering, across main and sub-meters (tenant meters) and good data help make informed decisions, provide cost certainty, and manage risks effectively. Actual energy data can then inform the energy use intensity of an asset. In regular-hour functioning buildings, there are EUI benchmarks set by the industry, which both asset owners and managers can use to compare to the EUI of their own assets.

What are the best ways to get the full picture on the data profile to give the commercial nature related to finance and products?

Navigating and mitigating risks

It’s important to understand and consider mitigating physical and transition risks. Transition risks, such as geopolitical conflicts impacting utility pricing, and considerations of taxes on carbon, can have cascading effects on service charges. Meanwhile, the changing climate introduces physical risks, like extreme weather events such as flooding and heat stress, within the real asset lifecycle. This impacts the value of real estate assets, so ESG needs to be priced into the evaluation.

Opportunities exist to introduce newer technologies into buildings, such as highly efficient air source heat pumps, which can mitigate risks associated with gas supply and highlight advantages of being on electric heating such as decreased energy costs and future-proofed assets.

Connectivity and transparency are key

There must be a good level of communication between stakeholders, including occupiers, landlords, building managers and investors. More transparency creates trust and accountability between parties.

There is a need for closer collaboration between occupiers and landlords. If both parties come together, they can work more efficiently to achieve common sustainability goals, resulting in cost-saving, improving wellbeing amenities and encouraging community initiatives.

Regarding signing leases, both parties should be aware of each other's sustainability targets and share information about the costs associated with transitioning buildings to meet these goals. Transparency can help manage costs and ensure a shared journey toward sustainability. Where possible, actions for the property managers to undertake to meet the landlord targets should be captured within the Property Management Agreement.

Landlords should actively understand and support occupiers' sustainability goals, including their decarbonisation targets.

A great example is the Green Lease Toolkit by Better Buildings Partnership. This toolkit is designed to bridge the gap between occupiers and owners and ensure they can form better ways of working together. It will be updated in Q1 of 2024 with additional resources, including an owner and occupier forum.  

For all of these reasons, both landlords and occupiers must be aware of each other's ESG targets and sustainability strategies to align their properties with evolving ESG goals.

ESG forums and community engagement

Dedicated forums focusing on ESG can provide a platform for occupiers to collaborate. The success stories include instances where close relationships between landlords and occupiers facilitate data sharing.

One of the best examples of this we've seen is at The Pollen Estate in Mayfair, London. They’ve built close occupier and landlord relationships, which has led to much greater transparency, so the occupiers have greater trust in the landlord. The Pollen Estate host quarterly occupier breakfasts where topics such as energy performance, circular economy and placemaking are discussed.

Positive relationships between fellow occupiers, particularly in co-working spaces, can also be an excellent opportunity for businesses. Shared opportunities between different organisations can be reached purely from interacting with each other and can enhance the workforce experience.

Encouraging occupier engagement

When considering the importance of social value and occupier engagement, much thought is going into motivating occupiers to return to the office. The benefits of ESG initiatives, such as shuttle buses, group social activities, and other amenities, are crucial in driving people back to physical offices. With support from Knight Frank Promise, Kennedy Wilson has implemented a programme of occupier engagement initiatives across four of their UK business parks. It’s important that building owners, landlords and property managers bring occupiers with them on this journey. These examples underscore the tangible benefits and positive impacts of well-executed ESG strategies on occupier engagement.

As the ESG landscape evolves, the importance of proactive collaboration, transparent data sharing, and a shared commitment to sustainability for both occupiers and landlords should be prioritised.

How can we support you?

Learn more about how our Property Asset Management team can support your ESG goals and initiatives.