ESG and net zero emissions gaining momentum among realty developers

ESG focus is fairly advanced in developed realty markets and will soon become widespread in India, say industry players; the sector aims to achieve 80-90% green certifications in 4-5 years

As the country moves towards achieving a net-zero carbon economy by 2070, decarbonisation of real estate becomes very important. Globally, the realty sector accounts for nearly 40 per cent of world’s energy consumption, 30 per cent of raw material use and 33 per cent of the related global greenhouse gas (GHG) emissions.

Environmental, social, and governance (ESG) focus is fairly advanced in developed real estate markets and it is only a matter of time before this becomes widespread in India, said Anubhav Gupta, Chief ESG, Sustainability & CSR Officer, Godrej Properties.

Independent rating agencies such as the Global Real Estate Sustainability Benchmark (GRESB) and Morgan Stanley Capital International (MSCI) have created robust comparison frameworks for the sector strengthening this focus and linking it to access to capital, he added.

In the past decade, the focus of stakeholders was primarily on the 'E' aspect, with less emphasis on 'S' and 'G.' However, the pandemic brought into focus existing inequalities, encouraging action to address them.

According to a JLL study, in the commercial segment, 321 million sq ft of Grade A office stock is green-certified in India, with Delhi NCR, Mumbai and Bengaluru accounting for 61 per cent of green-certified stock.

Samantak Das, Research head, JLL told Business Standard that in the next 4-5 years, the real estate sector aims to achieve 80-90 per cent green certifications.

For the past 12-18 months, there has been a major push from employees and companies to developers for green office spaces. On an average, green penetration is about 42 per cent, said Das.

A large chunk of the demand for green office space is coming from the IT sector, with a 71.4 per cent share of such projects. Even the penetration levels of green certification are higher with 50 per cent of it in the IT/IT SEZ sector.

“To promote green buildings under different rating systems, the government has been offering a 30 per cent subsidy on rooftop solar panels to most states' institutional, residential and social sectors,” said Anshuman Magazine, Chairman and CEO - India, Southeast Asia, Middle East & Africa, CBRE.

In addition, Magazine said that beneficiaries can avail of a generation-based incentive wherein they can receive Rs 2 per unit of generation if the generation exceeds 1100kWh- 1500 kWh per year.

However, incorporating ESG at the building / initial stages is much more cost-effective than retrofitting buildings as per ESG norms, he added.

Real estate players are skewed towards environment friendly measures for conscious development while striking a fine balance between ecology, emotion and economy.

“Developers are already opting for green certifications for both residential and commercial segments that enable low utility cost, tax benefits, improved air quality, subsidised power, and high energy efficiency, benefiting the occupier to reduce carbon footprint," said Niranjan Hiranandani, managing director of Hiranandani group. He asserted that companies nearly invest 5-10 per cent on commercial green buildings.

Adding to this, Raksha Ramaiah, MD, MS Ramaiah Developers, said overall investment in green buildings would be around 16-20 per cent. It also depends on the characteristics and challenges of the site. If the project is in a remote area, it becomes easier but if it is in the middle of a central business district (CBD) project, that makes it slightly more challenging.

“There is a lot of pressure on projects to develop their own infrastructure and this will take the load off the real estate developers to build within our own campuses and thereby reduce our carbon footprints,” said K Jayakumar, senior managing director, executive board, RMZ Corp.

Industry led interventions that have gathered recent momentum include standard carbon assessments and material standards with the Bureau of Indian standards etc.

The biggest challenge lies in the operations phase where an industry mandate for setting up Science based targets for emissions reduction requires a long term focus for achieving results, added Gupta.

Suggesting government measures, Gupta said that government can provide single window and faster approval clearance for certified green building projects and delivery based on track record, duties and other tax rebates for green building certified projects both to the supply and demand sides  Incentivise ambitious, science-based emissions reduction targets, allowing for highest (FSI) and best use (land use) for planning in lieu of sustainable development.