One of the most used buzzwords in sustainable construction and real estate these days seems to be the acronym ESG. ESG covers three areas of sustainability: environmental, social and governance. However, a new report from the Climate Positive Europe Alliance (CPEA), of which the German Sustainable Building Council (DGNB) is part of, shows that most of the industry’s commitment to ESG is focused on the E in ESG, with the S and G getting short shrift.

The Market Insights Report “ESG adoption and implementation in EU construction and real estate” by the Climate Positive Europe Alliance (CPEA) provides insight into how ESG related topics are being implemented in the industry. It concludes that there is a strong engagement with energy and climate issues, addressing the E in ESG. However, there is also less of a focus on other environmental issues such as promoting biodiversity, reducing pollution or responsible water management.

Ursula Hartenberger, CPEA Secretary General and lead author of the report, warns that this one-dimensional approach could lead to industry players being perceived by the public as ESG-washing. According to her, there are many risks in not addressing social and governance issues which are often the resulting from a narrow and one-dimensional ESG approach. “For example, there are direct links between decarbonization targets and social outcomes which in turn also have a bearing on an organisation’s governance performance”. To better illustrate this, the report includes examples of how E, S and G aspects can be linked:

The importance of reliable and transparent ESG reporting

As one of the largest emitters of greenhouse gases and responsible for around a third of the world’s waste, there is a huge need for the construction and real estate sector to move towards greater sustainability. But what sustainability means to different stakeholders varies widely. ESG criteria provide the basis for a more consistent understanding of what sustainability is. However, there are several standards for assessment and reporting – such as the Global Reporting Initiative (GRI), adopted by nearly 80 percent of the world’s 250 largest companies, or the Climate Disclosure Standards Board (CDSB).

ESG ratings play an important role in the EU sustainable finance market, informing investors and financial institutions on investment strategies, risk management and internal analysis. In addition, there are EU policies and regulations requiring ESG reporting, e.g. the EU taxonomy.

Therefore, apart from flagging up skills and knowledge gaps, the CPEA report not only highlights the lack of a harmonised, agreed sectoral definition and related standards, but also proposes a potential ESG definition that could serve as translation for construction and real estate sector participants.

Recommendations in the report

Based on the expertise of the CPEA ESG Working Group and practical examples, the report also features recommendations for policy makers as well as market participants. Among those, the report calls for an “all in one” Sustainable Buildings Directive based on the EU reporting framework Level(s), and the introduction of digital building logbooks to capture and manage all building-related data across the whole life cycle to overcome existing ESG data barriers. Concerning market practice, recommendations include the creation of new market rules that make it mandatory to prove the case “ESG compliant” and a call for introducing penalties for greenwashing.

At the time of publication, the ESG Working Group consists of 40 participating organisations, covering 10 countries in Europe with a membership background in finance and investment, real estate development and consultancy, asset management, and sustainability certification in addition to civil soviety organisations, professional bodies and industry associations.

Get the report here