Making ESG an integral part of the due diligence process saves time, money and allows for better investment decisions. Here are four steps to consider when integrating ESG in the process.
Jonathan Eade
ESG Lead
ESG as part of the due diligence process is an increasingly important aspect of real estate investment and development, particularly in light of recent legislative moves such as SFDR and increased rules on energy efficiency. If properly structured it can help investors and developers identify and mitigate risks, enhance sustainability, and improve the overall performance of a project. Positive ESG credentials of a building or project are also playing an increasing role in boosting rental yields and valuations.
There are several key steps involved in intertwining ESG themes within the normal ,due diligence process effectively. When defining the scope of any due diligence questionnaire you should at first determine what specific ESG issues are material to the project or building in question, and in what sections of the normal DD they should fall. Energy efficiency, water conservation, waste management, and social impact should all be high on the list. Background information such as public records, environmental assessments, building certificates or pre-assessments and previous stakeholder consultations also make good starting points, but what should you consider after that?
Robust ESG due diligence processes and subsequent pre-planning will serve you well and also ensure you go into an investment or project with most potential ESG risks, remedial measures (and opportunities) already identified. Given the wave of legislation, particularly when it comes to financing projects or investing in real estate projects, it essential you have this well covered or the economic and reputational costs to you could be substantial.
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