ESG and real estate: Leveraging data to understand the impact of energy performance on property value

For institutional investors buying or managing residential property portfolios and banks granting mortgage loans, the need to take better account of climate risks is becoming a reality. Real estate data and insights can play a crucial role here.

In recent years, the introduction of various European environment-related regulations, reforms and guidelines has had a major impact on the real estate sector. These initiatives reflect a more rigorous and ambitious environmental policy in order to help slow down climate change, both at national and European level. They also drive to encourage residential real estate, banking and finance professionals to better integrate ESG (Environmental, Social and Governance) and sustainability topics into their activities.

Some recent examples include:

• The reform of the Energy Performance Diagnosis (or DPE in French) in France
• The mention of ESG factors in the revised EBA guidelines on loan origination and monitoring – In its May 2020 report, the EBA specifies that “Institutions should incorporate ESG factors and associated risks in their credit risk appetite and risk management policies, credit risk policies and procedures, adopting a holistic approach.”

ESG: What are the challenges and consequences for investors and financial institutions?

While ESG initiatives aim to foster change, these regulatory changes and guidelines create new challenges and considerable implications for stakeholders providing financial services or working in the real estate industry.

The challenge for institutional investors is clear: they need to understand and analyse their estate’s energy consumption and efficiency so that they can then anticipate the impact of each asset’s energy performance on the current and future value of their portfolio.

Financial institutions face a challenge that is just as significant: they must take energy performance and energy efficiency criteria (ESG) into account, when carrying out risk assessment, mitigation and monitoring of their real estate mortgage portfolios. However, many banks face a problem of poor internal data quality relating to the properties for which they are providing mortgage loans. The information in their databases is often not structured and limited in terms of availability.

In short: ESG issues feature at the top of banks’ and real estate investors’ agendas, however, accessing complete and reliable energy performance data is a struggle.

Adopt a data driven approach by taking current energy performance into account

At PriceHubble, our client base comprises of numerous institutional investors and banks, so ESG matters moving to the top of our agenda is only natural.

We’ve enhanced our solutions, making the most powerful and highest-performing digital products available to real estate and finance professionals so that our customers may respond to the key challenges which they are currently facing.

We help our clients in two ways: we identify the energy performance of a property and we estimate the impact of the energy performance on price.

Identifying the energy performance of all properties in France, Netherlands and Germany now, but in the whole of Europe soon…

PriceHubble offers a practical solution for professionals: the capacity to identify the energy performance of any residential property, either by accessing the property's energy performance information, or by creating a precise estimate based on its features: address, year of construction, surface area, etc.

Here are some examples of how energy performance data can be beneficial:

• Banks can leverage PriceHubble’s residential real estate data to enrich their databases. PriceHubble identifies missing data points for each property within a portfolio then correctly maps the corresponding information according to a series of descriptive parameters such as the energy performance or the year of construction. This solution gives banks the opportunity to better understand the energy performance of all the properties they finance.
  
  
• Investors can also benefit from this enrichment solution; when conducting due diligence (on the buying side) for example, they can very quickly ascertain the energy performance of residential real estate portfolios, and take the right real estate investment decisions.

Estimating the impact of energy performance on price

We are fully committed to prioritising issues that directly affect our banking and investor clients, you’ll be pleased to know that we have also deployed R&D efforts in order to integrate the impact of energy performance into our price valuation models.

These valuations help professionals in two ways:

• Banks can accurately analyse the value of the properties that they are financing, taking into account the energy performance. They can also model the impact of energy renovations on the value of these properties. Lastly, they can anticipate and monitor the impact of energy performance on the value of the properties over time.
• Investors can acquire in-depth knowledge about their own portfolio, better understand the link between energy performance and real estate asset value, and prioritise their renovation efforts.

It’s time to act! Integrate ESG performance data into your strategy

It is now crucial for banks and investors to have access to complete, precise energy performance data, and to understand its impact on the value of real estate. We have placed ESG considerations right at the heart of our strategy, applying our unique expertise in Europe. Our digital solutions provide you with the most accurate valuations and analyses on the market. If you would like to enrich your energy performance data, assess its impact on the value of your portfolio, or you would simply like more information on our solutions, please don’t hesitate to get in touch.

Read our most recent blog post that covers the launch of energy-senstive valuations and do not hesitate to contact us if you would like to learn more about the topic.