As Global Green Regulations Go, the US Gets Off Easy

For all the talk of how important ESG considerations are to real estate investors, when it comes to national regulations that force the issue, the world is an uneven place, says a new report from real estate intelligence and analysis firm Green Street. And right now, the US is far behind Europe.

“Climate-related regulations are not a far-off possibility, but a near-term reality in the U.S. and Europe,” writes the firm. ”Regulations relating to climate change are varied and extensive. However, a common framework, particularly towards commercial real estate, undergirds most laws, enabling comparisons between the US and Europe. Not surprisingly, Europe is generally several steps ahead on this issue relative to even the most aggressive US regulatory body.” 

The firm looked at regulations across top markets in Europe and in the US, with a “scoring framework … designed to measure the potential impact on value/NOI.” The scoring scale was from 0 to 100. The average in European markets was 66. In the U.S. it was 11, including the “most aggressive U.S. regulatory body.” Most U.S. markets have few regulations, like the Sun Belt which has been the recipient of significant demographic shifts, unlike Europe.

Various analyses, including one by Colliers last December, have suggested that ESG, especially the environmental part, has become a must for investors.

“I think the surprise is the rapid adoption of ESG policies,” Aaron Jodka, director of research US capital markets at Colliers, told GlobeSt.com at the time. “I think there’s a general misunderstanding that the US-based investors are less concerned about ESG, and our survey suggests that is not the case. The building environment is a contributor to the broader market and real estate investors are paying attention to that. Their investors are also looking at that, whether it’s a pension fund or other types of institutional investors. It matters. Our survey showed that we’re still playing catchup on ESG-specific investing in the US, but environmental factors are now playing a part in the majority of asset performance reviews.”

The reason investors would take interest is their view of many things through the lens of risk. Not just that of flooding, storms, or other natural disasters that could have an impact on properties, but the possibilities that government action could press in. However, as Green Street wrote, “The US does not have formal emissions caps, carbon fines, or anything of the sort on real estate at the national level.”