Welcome to 2025: What will the year bring for ESG and property?

A new year invites reflection on what the past 12 months have brought and looking forward to what the next might hold. I’ll delve into what’s in store for 2025 later in this newsletter, but first, let’s take a moment to look back at some of the major ESG developments of 2024.

Let’s recap

Last year, I published five key trends that I believed would dominate ESG in real estate in 2024. While the year saw significant progress in many of these areas and many other improvements in green tech and policy,  the year is still on track to become the warmest year ever recorded, according to the World Meteorological Organization. 

Resilience and adaption entered the debate but haven't yet taken centre stage. Meanwhile, the retrofit revolution gained traction – we dove into practical considerations, key questions and the costs and benefits of retrofitting in Part 1 and Part 2 of Meeting the Commercial Retrofit Challenge series and highlighted historical building challenges.

Embodied carbon is increasingly being considered with the introduction of the RICS whole-life carbon assessment (WLCA) standard, 2nd edition, from July 2024. This took greater strides with the pilot Net Zero Carbon Buildings Standard, which sets to define what it truly means to be net zero with the inclusion of embodied carbon.

The new government set ambitious renewable energy targets and has already approved large-scale solar projects in East of England. Renewables will continue the momentum and offer property owners ample opportunities, as demonstrated in our New SPV: Solar Power Value report. On the new government's plans to overhaul EPCs and MEES (see below).

Looking ahead to 2025

Many of the trends identified in 2024 still ring true, yet the five for 2025 take this a step further. Below is a quick overview, with a more in-depth look at topics here and from some of our sector specialists here.

#1 Energy Use Intensity: Data as the new currency

The importance of one metric–Energy Use Intensity (EUI)–is rising as it forms a key part of investment decisions. In our 2023 ESG Property Investor survey, almost 70% required energy data prior to the acquisition. This data feeds into CRREM analysis, which can highlight an asset’s ‘stranding risk’. Accurate and verifiable data will likely become necessary to future-proof asset liquidity.

#2 Retrofit revolution: Momentum to build

Linking to the first trend, with one goal of retrofitting being improved energy efficiency, the retrofit revolution will continue, yet the timing could be eased. The industry had taken the 2021 consultation on the Minimum Energy Efficiency Standards (MEES), raising the EPC B-rating by 2030 as given. Yet, more rumblings have indicated that the timing could be delayed.  With regulation one of the key drivers to retrofit, as discussed in  Part 1 of Meeting the Commercial Retrofit Challenge series, the trend has been set in motion regardless of timing and will continue given the functional, physical and financial drivers.

#3 Re-use: Embodied carbon and repurposing assets

Inherent with Trends #1 and #2, we have embodied carbon. As mentioned above the introduction of the RICS Whole Life Carbon Assessment (WLCA) standard and pilot Net Zero Carbon Buildings Standard will see the focus grow. The retrofit-first approach is garnering attention and prominence within planning policies as it's noted for lower embodied carbon impact, and we are likely to see this continue. Where retrofit may not be viable, there is likely to be more repurposing activity with assets undergoing a change of use and reconfiguration.

#4 Renewable energy generation: Powering ahead

Grid connection issues have long been a bottleneck for renewable energy projects, but a shake-up is on the horizon. The new government has released its Clean Power 2030 Action Plan, enhancing a streamlined "first ready, first connected" approach. Developers with planning permissions and land agreements in place could see faster connection timelines, while small-scale projects are expected to bypass the new process altogether. Solar photovoltaics (PV), including rooftop and car park installations, stand to gain momentum, while offshore and onshore wind remain cost leaders. By 2025, wind power is projected to be 61% cheaper than gas, with solar close behind, making renewables a clear winner in the UK’s energy mix, according to a report by the Department for Energy Security and Net Zero (DESNZ).

#5 EVs: Shifting gears

Government policies could create substantial opportunities for real estate owners: the ZEV Mandate (Zero-Emissions Vehicle) has been mooted to reinstate the ban on the sale of purely internal combustion engine (ICE) vehicles from 2030; hybrids may be allowed until 2035. To meet these, the UK must rapidly increase the adoption of Electric Vehicles (EVs) and expand its EV charging infrastructure. For property owners, strategically identifying locations within their portfolios that are well-positioned for EV charger installations could unlock new income streams and secure their position in a rapidly evolving market. The Times reported this week that the UK “is on the cusp of an electric charging point revolution” following a record fifth of all new cars registered in 2024 being electric – a further 22% were hybrid. We’ve identified key opportunity hotspots here.

Around the world...

In Australia, around a third of occupiers surveyed said a key challenge to delivering their real estate strategy was aligning it with ESG strategies, with enhancing workplace experience as the top cited challenge by more than 50%. One way in which occupiers are overcoming this challenge is by moving towards sustainably certified buildings; two-thirds stated that the benefit of these is supporting organisational ESG goals and net zero targets, whilst 40% stated a benefit as improved wellbeing of staff and visitors.  Jenine Cranston also looks more broadly at ESG in the country’s-built environment, discussing the role of embodied emissions and resilience.

France's new energy efficiency rules for rental properties come into effect on 1 January 2025. Properties rated G will no longer qualify for rental, with stricter rules for F-rated homes by 2028. Since 2021, EPC ratings have become legally binding, meaning buyers or tenants can seek compensation if a property does not meet its stated energy performance.

Affordable housing in India. In the last few years, policymakers in India have taken substantial measures to address the challenges in affordable housing and cater to the housing needs of the urban and rural poor through various interventions.

Here are the ten global corporate real estate trends that will define 2025, including how ESG evolves. As the US looks to roll back certain environmental policies, businesses will be faced with a choice: either follow political shifts or embrace sustainability as a core long-term value.

Will EPCs change in 2025?

In December, the government began a consultation on Reforms to the Energy Performance of Buildings regime, which runs until late February. The aim is to:

• provide homeowners and tenants with accurate information about the energy performance of their homes to allow them to make informed investment and purchase decisions;
• provides an information tool to support a range of actions, including reducing carbon emissions, tackling fuel poverty, improving decency and the Warm Homes Plan;
• reflects the needs of wider users of EPCs beyond homeowners and tenants, such as suppliers of energy efficiency products and services, as well as lenders.

This includes considering changing, including or making more clear metrics such as energy cost, carbon, energy use, fabric performance, heating system and smart readiness.

Nicola Ryan's stat of the month – 20%

In 2024, 81% of UK households planned to deck the halls with a Christmas tree – 20% real, 61% artificial. While the traditional wooden tree may take a backseat during the festive season, could 2025 mark a shift toward wood in the construction industry? Steel and concrete still dominate, but the push for greener materials is growing. The question is – Do we have enough timber to meet demand?

What else I am reading

Emma Barnstable's look at retail and ESG in 2025, tied to which Bloomberg penned an article about second-hand gifts following a broader reuse trend, record wind power in December (twice), with wind becoming the biggest single source of Britain’s electricity for the first time ever and Bloomberg’s Climate predictions including record solar installations and rising EV sales.