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Colliers’ ESG report highlights urgent need for clarity on standards to advance sustainability in the property sector

EMEA report estimates some €7 trillion may be needed to retrofit buildings in Europe to comply with emerging ESG requirements

The global drive to advance sustainability is creating considerable uncertainty in the investment market for real estate, according to a new report by Colliers EMEA. The report, ‘ESG: A Tipping Point’, points to an urgent need for policy makers to agree on pragmatic, actionable targets that will support the creation of clear, consistent technical standards and benchmarks enabling reallocation of both capital and skills as investors rush to factor new ESG realities into decision-making.

The report highlights the fact that no one set of reporting frameworks has established itself as the accepted worldwide benchmark for ESG performance, making it very challenging for real estate investors to predict future requirements and liabilities. “The challenge at the moment is to understand what, exactly, needs to be done to calibrate property portfolios with the incoming requirements for decarbonisation in particular,” said Luke Dawson, Managing Director, Cross Border Capital Markets, EMEA at Colliers.

A particular source of anxiety is the massive potential cost of retrofitting existing buildings to comply with ESG requirements. The report estimates that this could be in the region of €7 trillion in Europe.

“This retrofitting cost challenge needs to be spread over the next 25 years if we are to aim to hit Net Zero, but to put this in context, it equates to the typical annual volume of investment activity in Europe – around €300 billion. It remains to be seen who will pick up or share the tab for these enormous retrofitting costs – investors, owners, governments or society as a whole,” noted Damian Harrington, Director and Head of Research EMEA, and Head of Capital Markets Research Global at Colliers. “But what is already clear is that the transition will create a wide array of obligations and new investment opportunities in effectively mandating the upgrading of properties worldwide.”

While the EU’s Sustainable Finance Disclosure Regulation (SFDR) was enacted this year, having a direct impact on the investment world, the report notes that emerging regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD), are poised to provide both greater clarity and new challenges. The CSRD is expected to come into force in 2023 and is initially geared to a company’s size, but nearly all commercial real estate companies will be expected to comply with it.

These standards will mean that landlords will need to understand what their occupiers are doing within their rented spaces - something the report notes could prove especially challenging for big-box units hosting confidential industrial processes or data repositories. “Educating boards about the new responsibilities arising from emerging regulations will be a vital part of the transition,” said Andy Hay, Managing Director, Property Management, EMEA at Colliers. “There will also be an increasing premium placed on ESG expertise, with more companies moving to hire specialists or seeking partnerships that boost their capabilities in this area.”

According to the report, a raft of adjustments will be required as disclosure metrics and reporting frameworks are formalised over the next couple of years, leading to a potential slowdown in transaction activity as investors come to terms with new norms. In this period, the ‘G’ will be the most important element of ESG, as corporate governance adapts in terms of culture, policy, systems, risk and control.

“While the details of how emerging standards will impact specific property assets may not yet be apparent, the extent of change required means a strict ‘wait-and-see’ approach will not be feasible,” added Andy. “It’s important that investors begin to respond now, by enhancing their understanding of ESG’s potential role in their portfolios and securing the necessary talent and partnerships.”

According to the report the main areas of priority for investors should include:

  • Making a board-level commitment to ESG and giving it a permanent place on the agenda, backed by training for all staff
  • Evaluating the organisation’s ability to deal with new regulatory challenges across the value chain
  • Assessing the ability of systems to capture and process the more detailed ESG data likely to be required by emerging standards
  • Building capacity to evaluate ESG-related risks and strengthening audit controls

View our EMEA ESG report, ‘ESG: A Tipping Point’ here

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Anna Silkstone

Head of Content

EMEA Marketing

London - West End

Anna is an experienced B2B marketer, communications and business development adviser. She specialises in content creation and the resultant campaign output. In her role as Head of Content, EMEA she develops compelling communications for multi-channel direct and social marketing, media and internal communications. This is done in partnership with the business line leaders, research, digital and creative leads.

Anna has developed all of her career experience in the real estate industry. This has included leading on market response campaigns, thought leadership content development, research report identification, production and launch, client engagement and market profiling campaigns, proposal responses and bid presentation management, value propositions for marketing material, trade show presence, stakeholder management, internal and external communications, and building a remote-working marketing team. 

Prior to Colliers Anna worked at the global law firm, Dentons LLP as a Senior Business Development Manager for the Real Estate team and latterly as Head of Campaigns for the UKIME region, focusing on Environmental, Social and Governance. Anna also worked at CBRE for over two years and supported the Occupier Services section of the EMEA business. Before CBRE, Anna was at Lambert Smith Hampton for nearly nine years in a regional marketing role and later as a UK campaign manager. 

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Andy Hay

Managing Director, EMEA Property Management and ESG

EMEA Operations

EMEA Headquarters, London

Andy has over 20 years of international experience with an exceptional track record of growth, business development and leading strategic change across multiple sectors. He joins Colliers from CBRE where he was MD EMEA - Property & Asset Management; prior to that he worked for big brands including RAC plc, Diageo plc, and Adidas AG.

Andy will focus on driving the continued growth and success of the EMEA region's Property Management division; improving client experience, developing relationships and optimising its EMEA service delivery model.

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Damian Harrington

Head of Research

Global Capital Markets & EMEA

London - West End

Damian Harrington is a Director and Head of Research for both Global Capital Markets and EMEA at Colliers. He has over 20 years of experience in the real estate industry living and working from various locations across EMEA including London, Dubai, Prague, Helsinki and Amsterdam. Damian is responsible for producing research for internal and external clients. His expertise helps to provide clients with global capital market trends and analysis, and connects them with strategic and actionable insights, such as the changing nature of global capital and the impact on global capital flows. Damian has produced numerous research papers and generated analysis of markets across all asset types - from residential to offices, retail to logistics and hotels to niche sectors such as life sciences, air cargo and data centres. Damian is a member of the EMEA location strategy team and a key member of Colliers ESG focus group.  He speaks regularly at internal global conferences, external industry events hosted by GRI, ULI and other key industry bodies, plus key annual events such as MIPIM and EXPO REAL.

Damian holds a Masters degree in European Property Development and Planning from University College London, a BPI Bachelor of Planning from the University of Amsterdam and a BA (Hons) in Town and Country Planning from Manchester University. He is also a qualified surveyor, holding an MRICS with the Royal Institute of Chartered Surveyors.

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