Articles 12th December 2022 esg

Mind the ESG data gap: What European property investors could learn from the French system

Vicky Cotton, Head of ESG at Workman, and Najib Ghantous, Director of Workman’s French subsidiary, Workman Turnbull, explore ESG data gap issues in this article for Institutional Real Estate Inc. (IREI).

Amidst ongoing geopolitical and economic upheaval, the focus of landlords and international funds is now directed more towards energy efficiency than ever before.

While the process of tracking energy consumption was previously a basic administrative procedure, involving little more than the recording of numbers in a spreadsheet, there is an increasing priority to interrogate those numbers in order to reduce the running costs of real assets.

In some parts of the European commercial property market, however, such as the United Kingdom, investors can face significant ESG data gaps in key areas such as energy consumption, water, and waste data, as much of this information will be held by occupiers.

While landlords will have visibility of data related to the common parts of their assets, the equivalent data for the occupied parts will naturally be held by the occupier. Yet this data for the whole building is vital. It drives performance and is essential for investors’ ESG reporting requirements and Net Zero aspirations. Without it, industry accreditations, such as GRESB, BREEAM and LEED, are beyond reach.

Predominantly for GRESB, but also now for Net Zero reporting, investors need 100% of a building’s data — particularly in terms of energy data, but ideally also water and waste data. Much of this data is already held by occupiers who do, in fact, have operational access to the information, but are often not incentivised to share it with landlords. Without a whole-building overview, however, overall performance cannot be accurately measured and improved. So, the current operational challenges faced by landlords within markets such as the United Kingdom’s — in tracking and receiving ESG data — are hindering progress towards both energy efficiency and Net Zero goals.

Combining occupier and landlord data to close ESG data gap

In order to meet ESG accreditation reporting requirements, many funds are seeking a solution to the ESG data gap problem. They would do well to look at improvements that France has made in data collection and push for them to be implemented in their countries.

Since September 2022 (having been pushed back from the original 2021 date due to the COVID- 19 crisis), French public policy obligates occupiers to use a nationwide open-source platform to record and monitor all energy and heat usage at an individual asset level. With clear statutory targets set for occupiers in France to declare consumption of energy and reduce consumption, Workman has already seen significant progress within French commercial properties regarding ESG data collection through its subsidiary business, Workman Turnbull.

The system requires companies to collect the energy data of their buildings and submit the yearly consumptions to the digital platform Operat, operated by ADEME, the French Environment and Energy Management Agency. All buildings that have 1,000 square metres or more used for tertiary purposes must declare their energy consumption on a yearly basis.

Companies that fail to comply will face fines of up to €7,500 for a single noncomplying building. For a company that owns or operates several noncomplying buildings, the costs could soon accumulate. Furthermore, the French state will penalise nonconformity on a “name-and-shame” principle, by publishing on a special non-compliance site list.

The rules are expected to drive reduction of energy consumption to the tune of 40% by 2030, 50% by 2040, and 60% by 2050, compared with a 2010 baseline. In addition, by 2026, firms operating in France need to declare plans and investment in order to reach the reduction targets. These will soon form an essential part of leases and deeds of sales, so they will obviously have a deep impact on rental value, attractiveness of a property, and the sales price of a property. This level of enforcement is now encouraging occupiers to engage with land- lords to provide this data, and Workman Turnbull is seeing significantly higher levels of data recording than before.

Streamline the process

Under this system, property managers are now often working in collaboration with occupiers in France to streamline the process. Workman Turnbull, for example, offers occupiers a service where their energy-usage data is collected directly from utility companies through an application programming interface, which allows the transfer and processing of information as part of the occupier’s service charge.

Occupiers who are eager to comply with the rules and avoid fines are also keen to deploy a specialist service that can simplify the process. Of course, landlords and investors benefit from this increased ESG data collection, as they are able to gain improved ESG accreditations, and, therefore, reap higher property values as a result. Although some much larger occupiers in the industrial sector rely on their own energy advisers to gather consumption data, the information is recorded via the same central Operat platform, so it is still possible to gather all energy usage for each asset. A further development in French property management is the “Green Committee”. This is a new legal obligation, but without sanctions (as yet). At Workman Turnbull, the team has already proposed a service to landlords, which consists of one meeting per year involving all occupiers at each property.

Here, the property manager provides information about energy consumption, water and waste disposal in communal spaces. Occupiers are required to do the same for their space. The data is then collated into one document, which is then used to identify measures to improve the environmental qualities of a property to reduce overall energy consumption. This process has, so far, proven to be an advantageous way to discuss energy and data collection with occupiers.

Can EPCs help the drive to Net Zero?

The French policy is in stark contrast to countries such as the United Kingdom’s situation, for example, which centres around the use of Energy Performance Certificates (EPCs), which are based on modelled, rather than actual consumption.

UK landlords face upcoming tightening of regulations, which are due to come into force in April 2023. Minimum Energy Efficiency Standards (MEES) regulations have been amended to require an EPC of “B” by 2030, with an interim target to reach an EPC of “C” by 2027. And from April 2023, existing MEES rules will be extended to make it unlawful for landlords to continue to let commercial property with an EPC rating of “F” or “G”.

For now, UK government estimates show that around 18% of commercial properties are in the EPC “F” and “G” rating brackets, with 80% to 90% of London’s stock currently rated “C” or below, leaving it open to devaluation by institutional investors in the future.

Therefore, although there is a statutory obligation to reach net zero in the United Kingdom by 2050, with no centrally agreed or enforced framework, this is essentially little more than a government target, which only the most diligent landlords and investors are fully prepared for.

Gather granular energy data

While there is little incentive for occupiers to improve the EPC rating of the building they inhabit, landlords must act to protect their investments. Many are taking a building-by-building approach, with the starting point being collection of data and granular information about the construction and energy performance of individual buildings.

Ultimately, data will solve this issue. A similar approach to that seen in France would allow for greater ESG data collection and should be considered by other countries.

If we can get general consensus from occupiers to access data directly from their metres via metering solutions, the European real estate industry will be well-placed to rapidly accelerate its march towards Net Zero.

Find out more about Workman’s ESG services