New ESG Reporting Measures

May

9 May 2024

The pathway to a more environmentally sustainable corporate and real estate world continues. New legislation across the globe is creating the next evolution in office buildings.

In Australia, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 is in the House of Reps. Schedule 4 focuses on Climate-related financial disclosure.

Amongst many things, “Schedule 4 …. amendments ensure that relevant entities disclose information about their exposure to material climate-related financial risks and opportunities, including their climate-related plans, greenhouse gas emissions and governance processes….

The proposed timeframe was from 1 July 2024 but now appears to be from 1 January 2025 and will be phased in over 4 years. For the CRE tenants, they will eventually all enjoy the benefit of housing their businesses in healthier and more efficient buildings. It will take time and will depend on the cost benefit analysis (value).

For the proactive landlords they will continue to keep their product relevant.

As for the lesser-grade office buildings, time is of the essence to remain relevant in this tenant’s market. National vacancy remains high, tenants are taking less space than before, and commercial terms remain very competitive. This means so many tenants are no longer compelled to lease C and D Grade space like they did in the past when they had little choice. Now there is a huge choice, so if these landlords don’t keep up, they will be left behind. As for the middle ground (not Premium and High A), this is better quality than many make out, and a very good value proposition.

The one thing we do see is that the new legislation will encourage new ways of refurbishing to attract the growing cohort of value driven tenants. For instance, is it necessary to try and make an old building into an A or Premium Grade product? We don’t think so. Why not refurbish it to meet the needs of the value-driven tenants?

This is where we see the real opportunity for the office markets in the coming years.