Why Sustainability Matters
When Hans Carl von Carlowitz (1645 – 1714), a chief miner from Freiberg (Saxony) and the considered founder of the principle of sustainability, wrote his book “Sylvicultura oeconomica” in 1713, he was facing a massive commodity crisis, as timber consumption had been exceeding the renewable resources for decades.
Until 2020, environmental protection, poverty reduction, global and intergenerational justice were intellectually appealing topics, but played a limited role in the financial services industry.
However, similar to the time when Carlowitz wrote his thesis, the impact of climate change has become more and more visible to western societies, culminating in a steep rise of natural anomalies over the past few years, and therewith moved climate protection towards the center of public and political attention.
On parallel terms, the UN’s Sustainable Development Goals and the EU’s ESG-regulation of capital markets (as part of the European Green Deal) gave the go-ahead for tackling climate change at a supranational level and channeling private funds into sustainable investments – thereby putting financial institutions on the spot to take sustainability more seriously.
Causing around 36% of global energy consumption and 39% of energy-related carbon dioxide emissions (cf. IEA Global Status Report), the real estate industry is under pressure from multiple sides:
Far-reaching regulatory constraints, such as CO2 tax and regulations on energy-efficiency bundle with rapidly changing liquidity and interest rates, the shortage of materials and skilled labor, evolving usage patterns and steeply rising energy prices.
The development of ESG-compliant assets and the refurbishment of existing real estate into sustainable properties will become one of the decisive value drivers in the next cycle.
But what is green and how can ESG compliance can practically be achieved while economic goals are secured?