Asset enhancement through ESG initiatives

Environment and Social Governance (ESG) is moving towards the top of the agenda and we see our customers increasingly focused on the creation of well considered and implemented corporate ESG strategies. But once a strategy is in place, the question is how can value be added to an individual asset or existing portfolio in what is a rapidly evolving area?

We see two essential drivers that need to be considered to maximise the potential success of any initiatives:

Risk management

Providing increased protection to the medium to long term value and liquidity of real estate assets from factors such as occupier demand, investor requirements, regulatory exposure, climate change and energy security.

Value creation

Realising opportunities that can improve the value of assets, such as increasing occupier attraction and retention, increasing rental value and/or slowing the rate of depreciation.

Whilst there are challenges for developers to build new and modern warehouses that incorporate and enshrine ESG principles, the industry has risen to the challenge with a ‘can do’ attitude and Delta-Simons has supported clients with ecology, arboriculture, social sustainability, energy and geo-environmental services along with more specific wellbeing applications such as WELL and Fitwell.

Perhaps more importantly, ESG opportunities cannot and should not be ignored in the existing built environment and perhaps bring even greater potential to add value to assets in property portfolios. The vast majority of existing warehouse and logistics stock predates any thoughts of ESG and raises the question of how to improve environmental and social credentials when these were not considered in the original design and construction?

We are assisting clients in the review of their portfolios and their operations to identify where they can make the most impact.

Example 1 - ESG Benchmarking & Enhancement

Delta-Simons was asked by a privately-owned real estate fund management and advisory business, who focus on acquisition and short to medium term enhancement of older industrial assets, to develop a tool to benchmark and identify ESG initiatives that could be considered within their business model.

Challenge

• To develop a process that can identify and prioritise potential ESG opportunities that fit with the client’s specific business model to maximise the value of any enhancements within a short to medium term.
• To develop and implement any such enhancements and monitor the outcome to demonstrate the value added.

Outputs

We worked closely with the client to understand their business needs and prioritises within their ESG strategy, resulting in the following:

• Development of an ESG Options Appraisal Report format designed to be used in parallel with other forms of reporting at due diligence stage of property acquisition and which can be used to assess existing assets within the portfolio.
• Provision of a simple tabular output that identifies a proposed action and expected outcome, with an understanding of cost, risk, benefits and timescales.

Delta-Simons applied the process to one asset within the client’s portfolio to demonstrate the value of the process. Following the initial assessment, the following prioritised actions (based on highest impact, best cost, or best overall value within timeframes) have been instructed, or are under further consideration:

• Creation of a wildflower meadow in areas currently supporting amenity grassland.
• Identification of suitable locations for underplanting with native shrubs around the site boundary.
• Selective thinning of woodland along a riverbank and underplanting, creating deadwood stumps/piles to enhance the river corridor.
• Installation of bird and bat boxes on trees along the riverbank and woodland edge.
• Costing exercise for the provision of LED lighting across the site for budget consideration.
• EV charging assessment across the site and wider portfolio.
• Identification of bike parking and storage locations across the site.
• Further assessment of opportunities to engage with local schools to involve them in the monitoring of ecological enhancements to strengthen social connections and interest in the site.

Delta-Simons will be involved in the planning, creation and subsequent monitoring of the ecological enhancements and the ESG Options Appraisal will be used on all appropriate property acquisitions for the client going forward and the process and outputs incorporated in to the clients annual ESG Report.

Example 2 - Biodiversity Benchmarking

Challenge

• To have something any staff member could use without prior ecological knowledge.
• To provide a system that could be used globally, whilst reflecting local requirements/conditions.
• Provide a tool that could both benchmark a site before and after enhancements so targets could be set and the improvements monitored and reported.

Outputs

Delta-Simons developed a simple user friendly process that delivers the following:

• An ecological baseline benchmarking tool, which also picked up key boundary and off site features as well as information about the site context.
• The style of questions designed to remove subjectivity to allow anyone to use it and provide consistent answers.
• A scoring system so each site could be given a baseline score and used to identify opportunities.
• A broad list of evaluating criteria covering wider environmental, social and economic factors for which each proposed opportunity could be scored against so that those providing the broadest sustainable benefit can be identified.
• Application of a local weighing factor so that ideas that address local issues could be given more weighting.

The project is in final design stages, being used by the client to fine tune reporting parameters, after which the process will be used to prioritise biodiversity enhancement projects across assets where significant value can be added in the short and medium term.

For more information contact Simon Brown.

Related article: Addressing the 'S' in ESG