How data is changing residential real estate

When you think about law and data, your first impression might be that the topic seems a bit dull. Legal requirements? Not the most exciting. But when you consider that using data has the potential to not only help with compliance but to also save time, cut costs and make real estate developments more attractive to investors and lenders, the subject becomes a lot more interesting. The real estate industry plays a significant role in tackling climate change, as buildings and homes account for around 40% of the world’s carbon emissions. To hit global climate targets such as the Paris Agreement, the real estate industry needs to step up and reduce its carbon footprint. Enter green data – a critical tool in this effort. Green data is essentially information on a company’s environmental impact, social responsibility and governance practices, commonly known as ESG. In the real estate world, especially in the living sector (residential properties), there is a growing demand to track, collect and share this data. Why the push for green data? Several factors are driving this demand for data transparency in real estate. There is a growing awareness of the environmental and social challenges facing our world. More and more investors and lenders are looking for sustainable, responsible places to invest their money. Tenants and residents, too, want their landlords to be accountable and transparent about their environmental impact. In short, everyone involved – developers, investors, lenders, operators and residents – is starting to recognise the importance of tracking and reporting ESG data. How property companies use ESG data In the living sector, companies have the potential ability to collect data on a wide variety of ESG topics. This can include tracking energy efficiency, water usage, carbon emissions, waste management, diversity policies and governance practices. Advances in technology mean there is more data available than ever, which can be both an opportunity and a challenge. Done right, collecting and analysing this data can help companies innovate, operate more efficiently and reduce risk. However, without a clear strategy the sheer volume of data can become overwhelming. That is why having a solid data collection strategy, aligned with business goals, is crucial for success. Simon Bennett, technology director at Get Living, has significant expertise in the build-to-rent and later-living sectors (being a former technology director at Riverstone) and has advised start-ups and established operators in the living sector. Bennett says Get Living is “working hard to address the huge challenges” in collecting and analysing certain types of data, for example on energy efficiency and energy consumption. “It is key to the success of our business that we work with both the utilities providers and tenants to ensure we comply with all legal requirements but also that we use the data we have collected to enhance our understanding of and achieve Get Living’s ESG objectives,” Bennett adds. The role of regulation For some companies, especially larger or publicly listed ones, certain ESG disclosures are already mandatory. For example, companies in the UK must follow the Streamlined Energy Carbon Reporting rules, while the EU’s Corporate Sustainability Reporting Directive applies to non-EU companies with significant operations in Europe. However, there is currently no single global standard for ESG reporting, which means companies often need to navigate a patchwork of rules depending on where they operate. Voluntary reporting: a growing trend Even when it is not required by law, many real estate companies are choosing to make voluntary ESG disclosures. This is partly driven by investor and tenant demand. According to a 2023 report by the RICS, nearly half of real estate professionals surveyed globally have seen increased demand for climate-friendly buildings. Voluntarily sharing ESG data not only helps companies demonstrate their commitment to sustainability, it can also give them a competitive edge. For instance, in the UK, the Net Zero Carbon Buildings Standard was launched in September 2024. While it is voluntary, this standard is supported by key industry groups and sets clear guidelines for companies aiming to meet net zero goals. Overcoming data challenges Despite the obvious benefits, collecting ESG data is not always easy. One of the biggest challenges is the lack of a unified regulatory framework (although various guidelines exist) or a common set of definitions of key terms. Different companies currently use different technological systems for tracking ESG data, making it harder to compare results across the real estate industry. The broad spectrum of ESG data means reporting can be complex and requires smart collaboration between different departments within the business and engagement from internal stakeholders. Currently, without an effective data strategy, all too often, this collaboration simply does not exist. Another hurdle involves the legal and ethical implications of collecting certain types of information, especially when it comes to collecting data on energy use in residential buildings. Strict data protection laws, such as the Data and Privacy Access Framework and the Smart Energy Code, limit the amount of information utility companies can share with landlords. To get around this, some companies are exploring new technologies, such as internet of things devices, which can anonymously track energy usage and other metrics without compromising tenant privacy. Data matters to investors and lenders Even with these challenges, the benefits of collecting and sharing ESG data are clear. It helps companies show they are committed to sustainability and social responsibility, which is increasingly important to both investors and lenders. According to the RICS, in Europe around 80% of real estate professionals have reported a rise in investor interest in sustainable real estate. Studies also show that green-rated buildings often sell or rent at a premium compared with non-green buildings, as they are seen as more valuable assets. Investors are also paying close attention to sustainability credentials because these properties are more likely to retain value over time and comply with evolving regulations. Guy Brocklehurst, relationship director at Leumi UK, which has provided sustainable finance-based real estate loans, says: “ESG requirements are now core to the decision-making process of any asset Leumi UK looks to fund. “We anticipate that given the huge growth potential of the living sector in the UK, any new ESG standards will be set ambitiously.  We are actively looking to support our borrowers in meeting these ambitious standards. The ability to collect and analyse reliable data is core to this process.” The future of data usage in ESG As the climate crisis continues, the pressure on real estate companies to prioritise ESG reporting will only grow. Governments are introducing more initiatives aimed at promoting sustainability in the sector. In the UK, for example, the introduction of the Net Zero Carbon Buildings Standard shows how serious the country is about reducing the environmental impact of buildings. By embracing sustainability and social responsibility, companies in the living sector can attract more investors, meet tenant expectations, and stay ahead of regulations. Those that prioritise transparency and make a genuine commitment to ESG goals will be better positioned to succeed in an increasingly competitive market. To help them do that, having a comprehensive plan to collect, manage, analyse and report on data relating to its ESG performance is a critical tool that goes to the heart of achieving successful business performance. Rachel Orton is a partner at Clyde & Co Image © iStock