Let’s see the latest developments in the EU business sustainability landscape and how social sustainability comes into play for commercial property owners in the region.
What happened?
To put everything into context, we need to examine the shifts in workplace dynamics and regulatory changes. The rise of hybrid work has reshaped the commercial real estate market, influencing demand for office spaces.
Today, we know that the market is in a post-COVID recovery at the moment: performing quite well. According to a recent report, “the volume of leased office space reached a new record high in the third quarter of 2023” in the EU. However, there are very different demands that owners need to meet to keep their property competitive and desirable.
What now?
Without a doubt, businesses are returning to office after a long period of WFH practices and, therefore, have different and new needs in an office space. This demand is also perfectly mirrored by recent regulations from the European Union.
ESG and EU Taxonomy
This non-financial performance indicator has existed for decades but is still an enigma for many. E (Environmental), S (Social), and G (Governance) aspects are all related to sustainable practices of businesses that report on these towards their investors and stakeholders. Although ESG was relatively unregulated, the EU has taken steps to change this.
As written in their article, the EU Taxonomy for sustainable activities “is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate”.
This means that businesses across Europe - including commercial properties - are obligated to report their efforts in economic sustainability, which is very closely related to E in ESG. With this change, the responsibility for sustainability reporting has now fallen under the CFO’s scope, as it directly influences capital and credit financing conditions. The financial world requires measurable and reliable data, making ESG compliance crucial for businesses and property owners alike.
But what about social sustainability or the S in ESG?
S in ESG
Meanwhile, this taxonomy is coming to power, and there are initiatives to bring the same emphasis to social sustainability, too. In a technical report, the European Commission published the need to include the social aspect into the EU taxonomy:
“Environmental and social aspects have been part of the EU’s sustainable finance strategy since the very beginning. It is widely recognised that there is a need for social investments to both: (i) achieve the sustainable development goals (SDGs) of the UN’s 2030 agenda; and (ii) create the social internal market set out in the Treaty on European Union (Article 3).”
With this demand for social sustainability regulations, an official statement will likely soon be accepted, and businesses will have to find a way to source their S data. To maintain their property’s value in the eyes of investors and tenants, commercial property owners must act on this initiative soon.
Measuring Social Sustainability
S is just as important as E in an ESG report in Europe. However, measuring social sustainability can be a challenge and property owners need a quick and bulletproof source of data.
An important element of social sustainability is the removal of barriers to employment. By using various schemes and frameworks, more and more employers are now working on implementing systems which will allow them to gain a deeper understanding of what can be done to proactively support staff diversity and inclusion. And this is where the link can be established between the wider business community (i.e. employers) and the property owners and asset managers who are becoming more and more conscious of the overall social impact of their assets.
This is also where inclusion and ESG come together, as inclusion and ESG are about building a sustainable workforce, like a sustainable environment or sustainable governance. So, in summary, put ESG and inclusion together and that is how you create a socially sustainable business. Implement a system which measures the impact for you, and you are then in full control.
Influential voices in the built environment sector such as RICS, have long been promoting these considerations in the wider sector. Firms and organisations with a diverse workforce have been shown to be more effective and efficient. Firms need staff who reflect the communities they serve if they are to be credible and understand the issues faced by those communities. Diversity is a proven route to greater creativity and innovation, which are essential qualities in a fast-changing world.*
Access4you ESG Score addresses a significant gap in assessing S. It is a time-efficient qualification method provided by Access4you - an internationally recognised social impact company - and its accredited partners that certifies accessibility of the built environment. With such third-party data, businesses and real estate owners not only gain reliable S data to their ESG report but also receive proposals to develop the accessibility features of the given location.
All in all, the commercial property market is heading out of economic downturns. Nonetheless, owners and leasers of the region need to comply with external pressures from the European Union. With the EU Taxonomy ruling environmental sustainability reports, obligatory reports on social sustainability are on the horizon, too.
This is a good time for stakeholders to start thinking about using S data from a trustworthy source and getting ahead of competitors with a valuable and socially sustainable location.
*RICS
Contributed: Anna Orcsik, RICS, Head of CEE and Strategic Partnerships - Europe