Nationwide ESG-Assessment of existing and new buildings at property level

The ESG topic has arrived in the European finance & real estate industry (RE) at the latest with the European Commission's Sustainable Finance Action Plan. ESG stands for "Environment - Social - Governance" and is intended to examine all relevant areas of economic activity for their environmental ("E") and social ("S") compatibility, as well as sustainable corporate governance ("G"). The real estate sector is of particular interest. In our latitudes, buildings are responsible for 40 percent of total energy, 30 percent of CO² emissions and consume a large amount of resources, in particular land, during construction and operation. On the one hand, regulations such as the EU Taxonomy (2020/852), SFDR (2019/2088), directives such as NFRD/CSRD, as well as guidelines from European and national financial supervisors including central banks are forcing companies and financial market participants to non-financial/sustainable disclosure. On the other hand, the market demand exerts pressure on real estate actors to improve in terms of sustainability. The revival of sustainable building certifications (DGNB, LEED, BREAM, etc.) can be seen as proof. Both developments (i.e. the sustainability performance of buildings), have or will have a financial impact on real estate assets and the market. This corresponds to the underlying logic of ESG, according to which sustainability stands in a reciprocity with the financial performance of an economic activity and/or asset. In the mid- & long term, sustainability enhances financial returns through risk reduction and growth opportunities. However, the technical implementation of ESG, in particular the financial aspect, still remains difficult. Existing ESG ratings have multiple deficiencies, they are (either)… assessing RE Companies based on disclosure reports without any information on assets level (ex. MSCI). are mainly expert-based weightings of ESG indicators with limited conclusion on financial implications (ex. GRESB). are assessing single objects with a dependency on lots of input data provided by RE asset managers or owners (ex. GRESB). Furthermore, data and methodology divergences are causing incomparableness. The research done by DataScience Service GmbH (DSS), a proptech/fintech company based in Vienna with focus on automatic real estate valuation (AVM), consists of two mayor efforts tackling some of the existing deficiencies. The development of an ESG tool which is capable of a nationwide ESG performance monitoring of assets and parcels with regulatory conformity. The underlying ESG indicators assess new and existing buildings, and are sensitive to different building types. The translation of ESG performance data into financial risks. A core component will be the integration of the ESG performance data into our AVM (regression model) to determine (statistically) the financial impact on real estate value (long term goal – no findings yet). The current status of our research will be presented at the conference focusing on the first mayor effort. The ESG tool required the development of a new conceptual framework structuring ESG indicators and a multi-scale hierarchy (market – location – property). The derived ESG indicators considering physical & transitional risks are the result of an intensive screening process of regulatory, certification and disclosure frameworks. The methods are based on scientific findings and therefore, they are referred to as "hard facts" (quantitative metrics), i.e. they are objective, independent and verifiable. The foundation of the tool relies on the combination of high-resolution images from air, space and property (including interior images), as well as other geodata, floor plan and other third-party documents such as energy performance certificates, building certificates and consumption data. This variety of data is analyzed using the latest methods of image recognition, time spatial analysis (GIS), text mining, etc. A particular advantage of high-resolution earth observation / geospatial data is, in addition to the spatial resolution and the global coverage, the possibility of constant monitoring. This means that the smallest changes can be detected at an early stage and immediately communicated to affected stakeholders. The new approach enables a high quality & consistent ESG rating at granular level (property level).