Rising financing costs do not help when it comes to planning ESG-related CapEx. However, most landlords wish to keep their buildings attractive to occupiers and higher energy costs are bringing the discussion of energy-efficient buildings into sharper focus, says CPI Property Group’s Non-Executive Director and Chairman of ESG Committee, Omar Sattar.
What does ESG mean for you personally?
I see it as a roadmap or a framework trying to guide companies to move to a more sustainable footing. Whether this is in terms of their impact on the environment, treatment of employees / external parties or even how they police their own ethical business conduct.
I view it as a positive change that many businesses are addressing social and environmental concerns and simply not only focusing on profits.
The challenge with ESG is that it covers a wide range of issues, the regulation framework seems to be fluid/evolving and there are different measurement approaches.
You have been working for CPI Property Group as a Non-Executive Director for three years now. The world has changed a lot since then. How has the company’s ESG strategy adapted to these changes?
CPI began its ESG journey back around 2018 with the aim of promoting a sustainable approach toward real estate development and management and I would say that this underlying principle hasn’t changed. Of course, certain elements within the strategy have changed, and if anything, I feel the focus on ESG has heightened within the group over the past 3 years.
Great emphasis has been placed on principles of good governance (The X principles of Governance – Luxembourg Stock Exchange), expanding the independence of the executive board, and updating our code of ethics and group policies on standards of conduct.
Additionally, it has been important for the group that our ESG strategy is robust and measurable and therefore the collection of data, collaboration with external expert bodies and the appointment of independent third-party companies to audit our strategy have all been key.
For example, on the environmental side, CPI backs all 17 of the UN’s Sustainable Development Goals 2015-2030 and endorses the 2015 Paris Agreement on Climate Change. Part of this has meant reassessing our targets to reduce Green House Gas (GHG) Intensity of the portfolio.
In July 2022, our targets were independently validated by the Science Based Targets Initiative (SBTi) which verifies that our environmental targets align them to the Paris Agreement climate goals, especially limiting global temperature increase to well below 2 degrees. The group has now set more ambitious a target to reduce its GHG intensity by 32.4% by 2030 (base year: 2019) across all emission scopes 1-3, up from 30%, and transition all electricity purchased to 100% renewal energy by 2024.
Sustainable financing is also an integral part of CPI’s environmental objectives. We were the first real estate company from CEE to issue a green bond (€750 million) CEE back in 2019 and since then issued three more green bonds and a ground-breaking sustainability-linked bond (€700 million) in 2022. Earlier this year we revised our Sustainability Finance Framework combining both Sustainability-Linked and Green Bond Frameworks with a second-party opinion being provided by Sustainalytics which indicated that key performance indicators are aligned with the Paris agreement.
In line with keeping stakeholders informed and transparent all of the key documents relating to CPI’s ESG strategy and 3rd party opinions are published on the company’s website.
What changes have you observed in the Czech market’s overall attitude towards this topic?
I believe the interest to learn more about ESG is growing and some companies are in the process of implementing their own strategy. Other are still figuring out what to do and understand whether legislation such as Non-Financial Directive Reporting or EU Taxonomy impacts them. Of course, there is still scepticism that some companies are simply inflating their ESG credentials to appear to be “doing the right thing”. This is no surprise given that the ESG topic is still in its infancy and evolving. I feel the market is still going through an ESG learning curve.
The ongoing energy crisis could provide an incentive for companies to invest in improving the energy efficiency of their buildings but rising financing costs might discourage them from making such investments. What’s your take on this? Will skyrocketing energy prices accelerate change?
I agree rising financing costs do not help when it comes to planning capital expenditures that help improve energy efficiency in a building. However, most landlords wish to keep their buildings attractive to occupiers and higher energy costs are bringing the discussion of energy-efficient buildings into sharper focus. I get the sense that the higher cost of energy is forcing many building owners to prioritise the implementation of new energy technologies. I am sure more would like to follow suit, but it’s also a question of what their capital budget can afford and when.
There’s obviously a lot that can be done concerning the E component of ESG. How is CPIPG approaching the S and the G?
Back in 2019 we established a CSR Committee (now called the ESG Committee) as a means to ensure there was supervision over the whole sustainability and corporate responsibility agenda.
Examples of some of our “S” initiatives have included:
Examples of some of our “G” initiatives have included:
What role does technology play in the implementation of CPIPG’s ESG strategy? In general, is the successful implementation of an ESG strategy based on a strong digital component?
It’s partly based on a digital component, but we don’t use a single all-encompassing digital platform that is being used for the ESG strategy. What we do have, for example, is our own Environmental Reporting Tool which is used to record the data across the portfolio, Smart Meters in some buildings, properties have a BMS system and digital applications that benefit our tenants.
Besides your role at CIPG, you’re also a lecturer in the MBA for Real Estate program at the University of Economics in Prague. What messages would you primarily like to convey to your students?
I teach a module on property investment in this MBA course and looking ahead I feel the sustainability credentials of an asset will play an increasingly significant role in the investment decision-making process and the capital value of a property asset.
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