White paper: How ESG due diligence is driving investment

A new report explores how ESG is helping property investors to maximise returns. Environmental, social, and governance (ESG) metrics are transforming residential property development, gaining traction as a growing commercial opportunity. The total global value of ESG assets in general is estimated to be more than $23 trillion. Having developed alongside a regulatory push to build better, both environmentally and socially, finding ways to demonstrate ESG has emerged as a new niche revenue stream.

A key investment driver

Now more than a box-ticking exercise, demonstrating ESG has become a driving force for investment in the real estate sector, on which specifiers, contractors and subcontractors can capitalise. To put this in context, the Royal Institution of Chartered Surveyors (RICS) estimates that 25 million UK homes need energy improvements. While this means more energy-efficient homes for residents, developers stand to gain from increased property values. This also applies to new builds, as the Future Homes Standard pushes for greener, low-carbon housing.

Adherence to ESG, which doubles up as an early indicator of quality, is becoming a ‘make or break’ for investors, as they become increasingly wary of properties that fail to meet tightening ESG standards. Early adopters who can showcase their ESG compliance are more likely to prioritise other critical factors, such as building safety. This shift keeps ESG considerations at the fore of property developers’ minds when seeking investment in their projects.

Offering more than a promise
As ESG strategy becomes more important in the business world, due diligence of ESG factors is increasingly significant for investors who want to make sustainable decisions about real estate assets. It is in the seller’s interest to present the property to the buyer in the best possible light. But what if there are hidden defects that buyers should know about in advance?

To offer peace of mind, companies need to prove that work is being carried out to the highest standards. So it pays to get your ducks in a row. Yet, while ESG has become a powerful force in property development and investment, the term has become somewhat nebulous in recent years. Companies might claim they’ve ticked all the ESG boxes but dig deeper and details can be vague. This lack of clarity can derail projects, scare off investors and damage the industry.

Putting the right systems in place
Reporting through various ESG frameworks and standards follows the usual pattern of applying internationally proven and accepted methods and practices of business risk management. It’s a demanding task, however, given the breadth and depth of these standards.

The good news is that, in today’s market, digital technology is being used to create greater project transparency, leaving no stone unturned. Specifically, we’re talking about software and platforms that provide those all-important, codified proof points. These are specially designed tools that offer ESG data collection and reporting for technical due diligence.

The goal of technical due diligence is to discover and assess possible technical defects to calculate the costs of repairs, renovation or reconstruction of a building. It is an in-depth analysis of factors such as a building’s condition, energy efficiency and history of maintenance and repairs. In most cases, customers do not perform technical due diligence themselves. They hire experts for it.

Leaning on technology
With the right digital systems in place, contractors can log and record every stage of the build, demonstrating that ESG, and technical due diligence, have been given due care and attention, with no room for confusion. This could be geo-tagged photographic evidence of low-carbon materials or the use of quality control measures to minimise material waste. QR codes and NFC tags on products can also be used to track build elements from manufacture through to installation.

Achieving ESG also requires careful consideration of document management and information sharing. Developers have a responsibility to share key updates as projects progress. Those who can readily share key information, be it energy consumption, property certifications such as BREEAM or LEED-accredited or even a building’s carbon footprint, will be a hit with investors and stakeholders.

The most successful management and reporting tools have been designed to fill that gap, making document management easier and more time-efficient than ever before. They can also assimilate easily with existing tech stacks for swift adoption and increased efficiency. Today, ‘interoperability’ is essential – should an update report be requested by shareholders, data can be quickly pulled from other apps or platforms and collated in seconds. Achieving this type of ‘techquilibrium’ can keep investors happy and ‘in the loop’.

Looking at the evidence, there’s no doubt that ESG is playing a part in construction processes, but how many realise its ability to help finance projects? Construction companies looking to future-proof their business should not only realise the potential of ESG but also the importance of digital tools to collate and manage ESG data. This is critical to provide complete, accurate data to showcase credentials which bring investors to the table.

Rob Norton, UK Director, PlanRadar