Article: ESG in Construction

Transition to ESG

KPMG Spain highlights the importance of the sustainability agenda for companies and the benefits companies can accrue by changing their operating, commercial, financial, and cultural models.

In Spain in 2021, around EUR55,000 million of sustainable debt was financed, and the amount at a global scale is estimated to be over EUR900,000 million, according to data from Environmental Finance. This reflects a 66% increase compared to 2020. This trend is being led by capital markets, where the vast majority of this funds are traded, injected are already reaching the “real economy.”

Climate neutrality is already part of the European and Spanish agenda. The new European Green Deal, or the Spanish law on climate change and energy transition, reveal the objective to reduce European emissions by 55% by 2030, with respect to 1990 values, and achieve net zero emissions in Europe by 2050. This challenge implies that all companies, regardless of their business model, must assume objectives of fundamental changes in their governance and value chain.

In this sense, and taking as an example the real estate sector, around 40% of global greenhouse gas emissions are generated by the real estate activity through construction and building operation, a key sector in the Spanish economy. It is true that some companies of the sector are already preparing for the 2030 objectives and have been realigning their investments to meet sustainable goals that are currently established in the EU taxonomy. This has allowed them to raise capital in better conditions, revalue their assets, and increase their profits.

However, there are still companies that have not made this issue a priority. It is essential that company managers understand that sustainability should be at the top of their agenda in order to comply with regulations and not to be left out of the market. It is, therefore, necessary to change their operating, commercial, financial, and cultural models—operating, in terms of process optimization toward renewable energy models; commercial, regarding how companies might demonstrate environmental commitments and stand out from their competitors; financial, through investment plans and access to capital (EUR55,000 million in 2021, in addition to the funds that the Next Generation will contribute); and cultural, regarding the alignment of corporate values to climate and social change.

Going back to the real estate sector, more especially in the typology of offices, companies are increasingly looking for buildings with a high energy efficiency, intelligent automated systems for climate control and lighting, with optimal water management, and built with sustainable materials and can maximize their employees’ well-being. To this end, the market has international standards for building certification, making it possible to validate their sustainability to third parties. And companies are willing to pay more for this. This translates into a revaluation of office space that allows owners to finance their assets, through green loans, for instance, which currently are cheaper than conventional loans. Furthermore, the day the owner decides to sell the office, they know that without a sustainable certification no investor will be interested.

The health crisis that has affected us during the last few years as a result of the COVID-19 pandemic has awakened in society the need for social cohesion, putting the spotlight on the preservation of the planet, as well as the individual’s well-being.

We have no Planet B and the solution for the environmental issue, and, fundamentally, climate change, will not be achieved without sacrifices and fundamental changes in our habits and behaviors. Together, we can still do it.

*Written by Ramon Gayol, Partner responsible for Real Estate, KPMG Spain & David Campos, Deal Advisory Director, Corporate Finance Real Estate, KPMG Spain