_ESG in 2025: Going 'back to basics' to drive consistent, impactful results

In this article, Jonathan Hale, Head of ESG Consulting at Knight Frank, explores why going ‘back to basics’ could offer the consistency and clarity needed to navigate the evolving ESG landscape and ensure real, lasting impact across the industry.

1. An increased convergence of real estate ESG reporting metrics

In 2025, we can expect to see an ongoing effort into the standardisation of how key performance indicators (KPIs) for ESG in real estate are used and interpreted. Currently, there are discrepancies in how these indicators are defined or measured, causing confusion and inconsistency across the industry.

The Institutional Investors Group on Climate Change (IIGCC) is collaborating with the European Union (EU) and other major institutions to address this issue, which could potentially be holding up billions of pounds of investment. The IIGCC has brought together a group of stakeholders (including investors, policymakers, and real estate professionals) to discuss and develop solutions that will help create a unified approach to these ESG KPIs. This could involve defining clear metrics, standards, and guidelines that will be applied consistently across the real estate sector.

2. A focus on capturing accurate data at each stage of a real asset lifecycle

There is increased pressure from investors to use actual and complete data to evaluate the sustainability performance of real assets.  Our Head of ESG Research, Flora Harley, shares her findings based on investor sentiment within the inaugural 2023 Investor Survey, and I’m looking forward to seeing how the 2024 survey compare towards the end of Q1 2025.   

As the real estate industry navigates both the pilot launch of the UK Net Zero Carbon Buildings Standard (UKNZCBS) and the Science Based Targets initiative (SBTi) Buildings Criteria (both released in 2024), these frameworks are recognised as crucial for reducing building emissions.

The UKNZCBS provides detailed guidelines on achieving the Standard, including emissions reporting, verification, and evidence requirements, primarily focused on individual assets. In contrast, the SBTi Buildings Criteria offers greater flexibility for real estate portfolios. While distinct, both frameworks are complementary and can accommodate diverse use cases.

Currently, investment decisions often rely on metrics like the Energy Performance Certificate (EPC) grade, Energy Use Intensity (EUI) – how much energy the building uses per unit of floor area, CRREM Stranding date, and decarbonisation capex. The accuracy of the underlying data for these metrics is paramount.

The open UK Government consultation on Energy Performance of Buildings (EPB) presents a critical opportunity. The real estate industry should actively engage with the consultation (prior to 26th February 2025) and support the government's ambition to accelerate net zero. In addition, aligning with evolving net zero carbon standards (UKNZCBS and SBTi) is crucial and should contribute to what I hope will be a higher probability that a comprehensive building passport will be developed for commercial use.

Accurate asset-level data is fundamental for informed investment decisions. Metering verification surveys ensure the reliability of energy and carbon data, enabling investors and asset managers to make sound judgments on property value, carbon reduction strategies, and sustainability goals.

Reliable data is essential for effective decarbonisation. It allows for accurate capital expenditure (capex) planning for necessary upgrades or retrofits. Without accurate asset-level data on energy use, emissions, and efficiency, outputs from frameworks like the Carbon Risk Real Estate Monitor (CRREM) can become distorted, and less meaningful in assessing a building's stranding risk.

3. Embodied carbon reporting becomes the norm

As of July 2024, embodied carbon reporting for refurbishments became mandatory, marking a significant shift in the real estate sector. This was driven by the RICS Whole Life Carbon Assessment (WLCA), which sets out the global standard for the calculation and reporting of carbon throughout the life cycle of a built asset, and details the requirements for completing a whole life carbon assessment. In 2025, the industry will be increasingly focused on calculating and reporting embodied carbon in refurbishments, with more mandating a retrofit first approach.

Real estate firms will need to allocate budgets for this process, but the long-term benefits include the ability to choose lower-carbon materials, which can then be marketed as part of a competitive selling or leasing strategy. While the shift is still in early stages, with less than a year of data, the trend is expected to ramp up as compliance becomes standard. Smaller businesses may face financial challenges, but larger firms, particularly landlords, will lead the charge in adopting these practices, driven by regulatory pressures.

4. Embracing a just transition for a holistic and sustainable future

ESG terminology is undergoing a notable shift, expanding from an arguably narrow focus on net-zero goals to a more comprehensive approach that includes the ‘just transition'. This concept goes beyond environmental sustainability to encompass social value, impact investing, and the importance of nature. The just transition seeks to address inequality, vulnerability, and opportunity through a human rights lens, aiming to reduce disparities, foster inclusion, and promote equity. From a climate justice perspective, it highlights critical issues such as the unequal burden of climate impacts on vulnerable communities, the responsibility of wealthy nations for historical emissions, intergenerational inequities, loss and damage, and unequal access to clean energy and green finance.

GRESB (Global Real Estate Sustainability Benchmark), a widely recognized framework within the real estate industry, collects data on $7 trillion (GAV) worth of assets globally. It is already helping real estate professionals understand the importance of the just transition, even if it is not always fully embraced.

However, measuring social value and the just transition remains a significant challenge, creating a barrier to broader adoption. While some government contracts, such as Section 106 agreements, are beginning to incorporate social metrics, the private sector is still catching up with these initiatives.

We anticipate a continued shift in the real estate sector, moving from a singular focus on environmental outcomes, such as net-zero, to a more holistic approach that integrates social and environmental equity within real estate investment and development. This evolution will be crucial in driving a more inclusive and sustainable future across industries.

5. Nature will be increasingly integrated into ESG Asset Positioning and overall asset level risks and opportunities

The value of surrounding land, including its biodiversity and ecological quality, is increasingly important in real estate asset evaluations. It is no longer just the physical buildings that matter, but also the environmental attributes of the land, such as its role as a carbon sink. This shift means that the biodiversity and ecological benefits of a property are critical in assessing its sustainability and energy usage, which impacts operational energy costs and carbon emissions.

Biodiversity Net Gain (BNG) requirements, while originating in the UK, are increasingly influencing regulations and best practices globally. These requirements drive more innovative approaches to real estate development, such as habitat creation, ecological restoration, and green infrastructure. This may involve accurate ecological accounting of development impacts and implementing measures to provide additional areas of equivalent or greater ecological value, such as through habitat creation or the purchase of biodiversity offsets.

Globally, the Taskforce on Nature-related Financial Disclosures (TNFD) is gaining traction, providing a framework for companies to report on nature-related risks and opportunities. This framework encourages companies to disclose their impacts and dependencies on nature, similar to how the Task Force on Climate-related Financial Disclosures (TCFD) guides climate-related reporting.

The UK ranks among the bottom 10% globally for nature depletion. This reality underscores the urgency for action within the country and positions fund managers, including those overseeing real estate assets, to play a crucial role in restoring the natural environment. These managers are uniquely positioned to lead efforts in reversing environmental damage while ensuring the long-term value of assets is preserved.

The focus is on how individuals within the real estate sector can drive positive environmental change while safeguarding financial returns. By integrating nature considerations into their decision-making processes, real estate investors can enhance the sustainability and long-term value of their portfolios while contributing to a healthier planet.

Looking ahead to 2025

It’s clear that in 2025, the focus on ESG in real estate will not only require technical advancements and new standards, but also a return to the core principles that drive meaningful change.

From improving reporting consistency to emphasising accurate data and prioritising embodied carbon, the basics will provide the foundation for progress. As the sector continues to grow, the integration of nature, the embrace of a just transition, and the continued refinement of ESG metrics will shape the future of real estate investment and development.

Ultimately, by revisiting these fundamental principles, the industry can contribute to investor confidence by achieving greater consistency, transparency, and impact, ensuring that sustainability becomes deeply embedded in every aspect of real estate practice.

If you’d like to learn more about ESG consulting, or how we can support you with your ESG reporting, please get in touch. Or to connect with Jonathan, follow him on LinkedIn.