How ESG Principles are Redefining Real Estate

India is currently the world's third-largest emitter of carbon dioxide. Government data reveals that the real estate and building construction industry alone contributes around 39% to the total emissions in the country. In response to this growing challenge, the adoption of Environmental, Social, and Governance (ESG) principles has gained significant traction across industries, particularly in real estate. These principles provide a panoramic framework to evaluate a development's environmental impact, social responsibility, and governance practices.

Increasing awareness of climate change, social iniquities, and their detrimental effects is reshaping global consumer behaviour. As a result, companies are shifting away from profit-only motives and embracing ethical practices and transparency in their operations. Several residential and commercial projects in Delhi NCR are adopting  ESG principles to meet these shifting demands. Let’s take a closer look at how real estate developers are integrating these principles in their offerings. 

Green Certifications

The Indian market is making significant progress in sustainability, as evidenced by the rise in green-certified office and residential properties in the past few years. As per Vestian Research, over 65% of Grade A office space across India’s top 7 cities is green-certified. Furthermore, among 1,362 Grade A buildings, 805 (or 59%) boast of green certifications, signalling India’s growing dedication towards sustainability. 

With real estate projects in India adopting green building standards such as IGBC and LEED certifications,  the green building sector is poised for remarkable growth, with a projected CAGR of 20% over the next five years. As India’s office market draws global businesses, developers are increasingly prioritising international certifications. This trend is reflected in the dominance of LEED certification, which accounts for a remarkable 74% share as of Q2 2024. Metropolitans are spearheading this trend with real estate developers offering a wide range of green-certified office space for lease in Noida and other tier-1 cities.

Green Leasing

Green leasing ensures transparency between landlords and occupants while incorporating ESG principles in the rental agreements, fostering a collaborative environment for energy conservation and sustainability. These leases come in three shades—light, medium, and dark green—representing varying degrees of commitment to sustainability.

A recent JLL–CRE Matrix report shows a 132% increase in green leases in India’s office market from 3.7 million square feet in 2018-2019 to 8.6 million square feet in 2022-2023, driven by a post-COVID focus on sustainability. Commercial projects in Delhi NCR are at the forefront of adopting these practices, with developers offering office space for lease in Noida bound by green leasing clauses.

Government Initiatives

Given its size and population, India is vulnerable on both environmental and social standards, and thus, incorporating ESG principles across sectors becomes the need of the hour for the sustainable growth of the country. Within the real estate sector, the government has also aided this journey with a series of initiatives aimed at embedding green principles into the real estate sector, turning them from a choice into a mandate. 

Government policies such as the Energy Conservation Building Code (ECBC) and the National Mission on Sustainable Habitat promote energy-efficient design. Moreover, policies like the Green Rating for Integrated Habitat Assessment (GRIHA) minimise resource consumption and waste generation. 

Real estate developers are increasingly trying to ensure that residential and commercial projects in Delhi NCR align with these policies and frameworks, as compliance can positively impact the valuations of their offerings. This has also resulted in a growing trend of developers offering office space for lease in Noida and other tier-1 cities which meet these nationally accepted standards.

Technological Innovations

As transparency plays a crucial role in the ‘Governance’ aspect of ESG principles, technological innovations become key in gathering accurate and quantifiable data. To ensure regulatory compliance and keep track of their environmental footprint, businesses must rely on precise data tracking. 

The Indian government has set an ambitious target to achieve net-zero emissions by 2070. To reach this goal, it is crucial that all sectors, particularly real estate, pursue growth on sustainable grounds. Establishing ESG principles as standard practice would be vital to this objective. India’s real estate sector is embracing ESG principles to comply with emerging regulations and meet the changing expectations of consumers, investors, and governments. The increasing adoption of these principles sets the stage for a more sustainable and ethically driven real estate market in India.

 

 

 

 



 

 

 

 

 

 

 

 

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