ESG: Moving in the Same Direction

Real estate is in the early stages of Environmental, Social & Governance (ESG) adoption, but there is a shared sense of urgency among its stakeholders to reduce the asset class’s carbon footprint, Peter Epping, global head of ESG at Hines, discussed in a keynote interview with PERE’s Alicia Villegas.

In PERE's 2021 ESG Report, “Real Estate’s Race to Net Zero is Picking up Pace,” Epping explained how ESG is at the forefront for both occupiers and investors.

Read the keynote interview

Occupiers are “now actively looking for a dialogue with landlords and seek to collaborate and jointly reduce the environmental impact and carbon footprint of their space, the building frame, the building skin and building systems.

“Equally, investors – not just in the transactions market when they buy assets directly, but also if they invest in funds – have a much more heightened sense of awareness of ESG factors. They want to understand how a fund is dealing with its carbon footprint and how quickly it will be reduced over time and brought to net zero. As an example, for some of our funds, we now have investors asking specifically about the carbon footprint and carbon emissions of individual assets,” Epping said.

Geographically, investors in North America are having similar conversations about making ESG a priority as European investors, with several Asia-Pacific investors taking a leading position in the region.

RELATED: Hines VP of Carbon Strategy Michael Izzo featured in Fast Company

So what progress has the real estate industry made in ESG?

“If there were 10 stages of ESG adoption and implementation, I’d say real estate is somewhere between two and three at the moment,” Epping said. “Importantly, though, you’ll be hard-pressed to find any firm today that doesn’t have an ESG target or is not planning to implement one soon.”

At Hines, our ESG strategy is to have a positive impact on our tenants, our partners, our people and the planet. These efforts originate with our local teams and their deep knowledge of market needs.

“You need to perform not just in a few signature projects or in one year; it must be scaled across our whole business and strong performance must be repeated.”

Peter Epping, Global Head of ESG at Hines

Our ESG initiatives are implemented and iterated so the feedback loop leads to continuous learning and investing.

It’s up to fund managers to take a lead on sustainability, according to Epping.

“The global problems we’re facing are so pressing and finally forcing the market to change quickly now, both on the environmental side, where climate and carbon are the dominant topics, and on the social side, where housing is one of the biggest issues we’re facing. Imbalances have built up in the market and our cities can’t tolerate those any longer. That means our system, our economies, our societies are now changing,” Epping explained.

Understanding at the early stages of development how to reduce embodied carbon can mean lower energy and operating costs and lead to better returns.

“So, you can de-risk your assets, contribute to solving the big problems we’re facing and in all likelihood provide a better risk-adjusted return,” according to Epping.

You can read the full keynote interview with Peter Epping here.

On the Minds of ESG Heads

Daniel Chang, our head of ESG for Europe, was also featured in the PERE ESG Report. Chang was part of a discussion on how the asset class can combat the climate crisis.

"We are integrating a net-zero carbon mindset into our business processes and into our investment products. It’s not just the right thing to do, but we can mitigate risk and improve financial performance," Chang said.

The feature also discussed the biggest challenges for the real estate industry, particularly around upstream and downstream emissions data.

"The challenge is working to find bespoke solutions for existing assets to help lower these figures while minimizing disruption."

Daniel Chang, Head of ESG for Hines Europe

Chang explained how the real estate sector has a pivotal role to play in mitigating the impact of climate change and creating healthy and resilient communities.

An ESG strategy is now a focus for many investors, who want a deeper understanding of the commitment.

"They (investors) are very much wanting to get into the details of what the carbon strategy is and what the mechanics are to achieve net zero," Chang said.

In Chang’s role for Hines announced in October, he will be coordinating carbon reduction standards and initiatives, such as the net zero strategy for the Hines European Core Fund, defining social programs that foster meaningful engagement with stakeholders, and ensure adoption of transparent and accountable governance frameworks, such as GRESB and The United Nations Sustainable Development Goals (UN SDGs).

Read the full 2021 PERE ESG Report including the analysis feature with Daniel Chang here.