In the summer 2023 issue of The Property Chronicle, we discussed the gathering stranded asset storm in commercial real estate, with one factor being the impact of energy performance certificate (EPC) ratings on the UK’s commercial real estate market. A question naturally follows as to what other sustainability variables could affect the performance of an asset, and by extension, valuation. With the advent of ESG 2.0 and accompanying regulations, it seems like an increasing number of sustainability variables, once measurable and comparable, will be accounted for in valuations.
A quick recap on the genesis of ESG
The view of the enterprise as more than a solely revenue-generating undertaking has a long history; think of Bournville, Port Sunlight, and so on. In the 20th century, anti-discrimination laws proliferated, and themes such as “ethical investment,” “socially responsible investment,” and “corporate social responsibility” emerged from the academic literature. Then, in July 2000, the UN secretary general launched the “Global Compact” as an international initiative to advance responsible corporate citizenship. Four years later, 500 leaders of enterprise, government and non-government organisations met to debate the topic of global corporate citizenship, among others. One of the major outcomes of this summit was the pledge of twenty major financial companies to “begin integrating social, environmental and governance issues into investment analysis and decision-making.” ESG, as this initiative came to be known, took until 2019 to really gain mainstream attention, as evidenced by Google Trends data (Figure 1).
