The role of ESG data and technology in transforming the European built environment

The focus on environmental, social and governance (ESG) is increasing as extreme weather events and other climate change impacts disrupt the environment around us. Governments and industry are seeking the means to take a more sustainable approach through ESG initiatives, prompting investors to prioritise low-carbon opportunities. What challenges lie ahead in transforming the European built environment and how can ESG data and technology help?

An era of global boiling

Based on the Paris Agreement, adopted in 2015, the European Union (EU) set a specific target to reduce its greenhouse gas emissions (GHG) by at least 55% by 2030, compared to 1990. The goal was to reduce the average global temperature rise from 2°C to 1.5°C above pre-industrial levels.

Analysis from the Global Carbon Atlas 2021 highlights that GHG emissions rose by 38% across Europe and the world between 1990 and 2015, illustrating a growing trend in global temperatures towards 2.5°C. As UN Secretary-General Antonio Guterres recently stated, ‘we are in the era of global boiling’.

Growing demand for ESG-compliant assets in the EU

The EU Taxonomy Regulation for sustainable activities entered into force 12 July 2020.  It provides clear and common language for various industries, and defines the environmental standards that businesses must meet for their activities to be deemed environmentally sustainable. Additionally, the regulation mandates certain companies to report their activities, ensuring alignment with the Taxonomy's definition of sustainability. The steps for the EU Taxonomy are as follows:

• define and categorise economic activities based on their environmental sustainability
• promoting sustainable finance
• mitigating greenwashing
• setting clear standards
• supporting climate goals
• transparency and reporting
• policy development
• investor and consumer confidence and
• long-term transition.

Over the last decade, the demand for delivering ESG-compliant products has accelerated as investors, banks and tenants are prioritising ESG compliance more and more.

According to analysis by Deloitte Insights, ESG-mandated assets were worth USD 19 trillion in 2014; occupying around 30% of all global assets under professional management. By 2024, this figure is projected to grow to over 50%, and be worth equivalent to USD 80 trillion. By 2025, 60% of all professionally managed assets are predicted to be ESG-mandated, with a worth just under USD 100 trillion.

In the period following the introduction of the EU’s Sustainable Finance Disclosure Regulation, the flow of funds classified as either promoting environmental or social characterises (Article 8) or having sustainable investment objectives (Article 9) grew from less than 10 funds in August 2022 to more than 120 by the end of 2022 (Figure 1).

Upgrading the EU building stock

Most buildings in the EU were constructed before the 1970s. The Buildings Performance Institute Europe (BPIE) have garnered data from Energy Performance Certificates (EPCs) and determined that less than 3% of the EU’s building stock have a highly efficient EPC rating of ‘A’. This leaves 97% the building stock requiring upgrading to achieve a decarbonised building stock by 2050. BPIE’s study found that the countries with the biggest share of highly efficient buildings, according to EPC data, were France and Germany (7% and 8% respectively).

ESG consulting and auditing play a key role in sustainability directives, which support cost reduction and building material expenses. Under current global circumstances, high interest rates and rising construction costs have impacted company financial statements and postponed required investments for ongoing projects. The combination of these factors hinder property retrofitting and financing.

Tech solutions to implementing ESG

According to a workcloud24 poll, more than half of responding companies want to implement ESG strategies but struggle because of insufficient support or overall knowledge. To mitigate this matter, firms must educate stakeholders on why ESG is crucial in real estate and global commerce. Firms should highlight the potential upsides of ESG and, at the same time, identify potential impacts that can harm business development. Companies must identify those activities where the highest impact on ESG outcomes can be achieved.

Tech solutions can help us to analyse and identify market patterns and support us in planning, executing and monitoring complex ESG strategies. New climate technologies, with applications in the built environment, are continuing to emerge. Companies are implementing a variety of technologies as part of their strategies to reduce the embodied carbon of an asset.

These emerging applications leverage technology and data to improve our understanding of the social impacts of climate change, and the further development of more effective strategies for mitigation and adaptation:

• Low carbon concrete - In Australia, the cement and concrete industry has been working to reduce its environmental impact for over 20 years, achieving a 25% reduction in CO₂ emissions since 2000. To meet Australia’s target of net zero by 2050, further research will be needed to develop low carbon materials, including new clinker content, alternative binders and cement formulations.

• Waste management - Supporting circular economy design principles, waste management technologies are being explored and implemented throughout the sector and across the operations and life cycle of an asset. This includes the materials sourcing, transportation, manufacturing and disassembly of buildings.
  

• Identifying climate vulnerabilities in property portfolios - Big data analytics and machine learning algorithms have been in place for years in the financial industry, but are increasingly being employed to analyse large datasets for peer group simulations of property portfolios for ESG risk assessment. Geographic Information Systems (GIS) are another technology being utilised to map and analyse climate vulnerability.

• Smart buildings – digital twin, AI and energy management BIM - Smart building tracking technologies were used during the COVID-19 pandemic to track employees' journeys to prevent disease spread. From air quality sensors and occupancy measurements, to workload power control devices and desk-sharing applications, every piece of information helps to increase user experience and reduce energy consumption.

• Blockchain and ESG compliance - The use of blockchain technology to secure and share data reflects the progress made in ESG projects and the path toward decarbonisation in compliance with national and regional regulations.

• Crowd-sourced data - Technology can facilitate community engagement and collaboration by sharing knowledge, resources and solutions. Crowdsourcing can be an effective, bottom-up approach to elicit public contributions to solve problems. By raising awareness and supporting the engagement of local communities or tenants increases, this kind of activity has the potential to improve ESG compliance. Crowdsourced data also helps decision-makers and organisations gain a better understanding of the possible impacts of specific projects, informing the implementation of more successful community and local projects.

With the aid of these and other emerging data and technological applications, we can expect more innovative approaches to address these global challenges as technology advances. It is imperative that we flatten the emissions curve and slow global temperature rises. There has never been a better time to grasp the opportunity afforded by these tools and take action. In the words of the Roman philosopher, Lucius Annaeus Seneca:

‘It is not because things are difficult that we do not dare, it is because we do not dare that they are difficult.’