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"Decarbonisation efforts kick off in earnest"

Investors in real estate are facing growing pressure due to ESG factors. Vincent Bryant from Deepki and Volker Stix from Catella dive into the topics of data quality, regulatory changes, and the risks of stranded assets, while also addressing what is necessary to stay competitive.

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Real estate investors feel the squeeze from Environmental, Social, and Governance (ESG) concerns....
Real estate investors feel the squeeze from Environmental, Social, and Governance (ESG) concerns. Vincent Bryant (Deepki) and Volker Stix (Catella) analyze data accuracy, regulatory shifts, and the potential for stranded assets. They also delve into the necessities for staying competitive in this evolving landscape.

"Decarbonisation efforts kick off in earnest"

The discourse surrounding Environmental, Social, and Governance (ESG) criteria in real estate has witnessed a considerable evolution in recent years. ESG was once regarded as an added value, but has now taken center stage in investment strategies. This transformation is largely due to heightened concerns over climate risks, increasing regulatory pressure, and the growing demand for accurate data.

Data: A persistent challenge

The use of reliable ESG assessments depends on robust data, yet this remains a significant hurdle. Volker Stix, Managing Director at Catella Investment Management, echoes this sentiment, stating, "Our primary challenge wasn't verification - it was the scarcity of comparable ESG data." Using the French ESG proptech company Deepki platform, Catella constructed a structured and dependable data foundation. Deepki's CEO, Vincent Bryant, explains that his firm analyzes ESG data for real estate assets valued at over 4 trillion euros, aiming to eliminate data entry errors of up to 10% through automated data collection, AI-powered quality assurance, and ISAE 3000 Type II certification. The goal is to elevate ESG metrics to the same level as financial reporting standards.

Despite the growing emphasis on ESG, the European Union lacks unified regulatory standards. According to Stix, "A standardized European energy certificate would be ideal; however, we are currently investing in 15 countries with disparate requirements." Although this diversity doesn't hamper the process, it necessitates adaptability, as Stix notes, "It's not so much a conflict between regulation and practice as it is a set of contradictions we must manage."

Bryant from Deepki maintains that ESG platform solutions help alleviate these discrepancies by standardizing and centralizing data from different sources. This creates a consistent framework for investors to make informed decisions.

ESG as a risk factor

The discussion surrounding so-called stranded assets demonstrates how ESG criteria have moved beyond ethics to represent financial risks. Properties failing to meet energy-efficiency or emissions standards risk significant depreciation. "The race towards decarbonization has started - some are already sprinting, while others are still at the starting line," notes Bryant.

Properties with subpar ESG performance pose not only climate risks but also social hazards. High energy consumption raises utility costs, which threatens affordability, as Stix points out. A Deepki survey found that 94% of market participants perceive financial risks in underperforming properties, with over half anticipating that at least 30% of their portfolios may be affected.

Catella has integrated this insight into its investment process, employing the "Climate Value at Risk" metric - computed using Deepki and MSCI data - as a crucial decision-making tool. ESG criteria are now directly incorporated into risk assessments and performance analyses.

ESG and financial strategy

The merger of ESG into finance departments at major companies serves as another indicator of this shift. "ESG and finance will merge - carbon management will become a core aspect of financial strategy," predicts Bryant. In numerous firms, ESG teams now report directly to CFOs, a trend Bryant expects to persist.

Catella exemplifies this change with its "KCD-Catella Nachhaltigkeit Immobilien Deutschland" fund. This fund combines environmental and social criteria with traditional investment indicators, employing tools like the CRREM indicator (Carbon Risk Real Estate Monitor) to identify and manage emissions-related risks.

Overall, the real estate sector is undergoing a steady professionalization of ESG management. Regulatory demands, investor expectations, and technological tools are transforming how investment decisions are made, and ESG data is becoming an indispensable component of portfolio strategy.

  1. The challenge of using reliable ESG assessments lies in the scarcity of comparable ESG data, as stated by Volker Stix from Catella Investment Management.
  2. Deepki, a French ESG proptech company, aims to eliminate data entry errors by automating data collection, using AI for quality assurance, and obtaining ISAE 3000 Type II certification.
  3. The European Union needs unified regulatory standards in ESG, according to Stix, as diversified requirements in various countries create a need for adaptability in investments.
  4. ESG platform solutions, such as Deepki, help standardize and centralize data from different sources, creating a consistent framework for informed investment decisions.
  5. Properties with poor ESG performance pose financial risks, as they can depreciate due to energy-inefficiency or emissions standards, or raise utility costs, threatening affordability.

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