Real Estate 360° | 2025
Sustainability
Economies of scale required to drive progress
With 2024 recording the warmest temperatures on record globally, sustainability remains a top priority for the real estate sector. The built environment is responsible for 40% of annual global emissions, making it a critical area for investors, developers, occupiers and funders.
For the third year in a row, the lack of cost-effective technology solutions is considered the top barrier to decarbonisation. Meanwhile, 53% of real estate businesses believe the sector is progressing towards net zero, a slight increase from last year. Despite this optimism and some technological advancements, the market is still evolving and has yet to achieve economies of scale. Economic challenges, supply chain issues and construction costs have compounded these barriers, including a lack of landlord willpower, cited by 35% of respondents. Smart grids and improved infrastructure are crucial, but energy storage and grid connectivity continue to pose considerable challenges to progress.
The biggest barriers to decarbonising the real estate sector
Lack of cost-effective tech solutions
Lack of landlord willpower to invest in environmentally friendly solutions
The impact of the energy crisis
Lack of understanding of how to decarbonise
Retrofitting energy-inefficient stock
Lack of people/workforce
Carbon-intensive construction
Conflicting legislative agendas
47% of respondents believe they can decarbonise without sacrificing some financial returns. Securing finance is often tied to sustainability plans and metrics, alongside factors such as procurement evaluation.
How much do you agree or disagree that your business can decarbonise without forgoing some financial returns?
Strongly agree
Slightly agree
Neither
Slightly disagree
Strongly disagree
EPC ratings at a crossroads
Achieving high EPC ratings is the primary sustainability priority among respondents. Tenants demand green buildings and reduced operating costs, while landlords benefit from rental premiums.
Legislation is a notable driver; currently, private rented properties must achieve an EPC rating of at least C by 2030. 44% of respondents find this timeframe realistic, while 15% expect the government to extend the deadline, following back-pedalling on other ESG-related targets. There is an increasing risk of stranded assets across commercial and residential properties, where the cost-benefit analysis doesn’t justify the investment in improvements. Change is on the horizon, with a government consultation on EPC ratings potentially altering the enforcement of the EPC system and the way buildings are assessed.
Which two of the following are the most important to your business in relation to sustainability?
Achieving as high an EPC rating as possible in buildings
Sustainable procurement practices
Reducing operational emissions
Longer-term impacts of climate change (flooding etc)
Reducing embodied carbon
Biodiversity
Achieving non-mandatory certifications (such as BREEAM)
Other
Rich Hall
Head of Sustainability, RSM
“Regulation is a key driver of sustainability. Many real estate businesses should prepare to report on environmental plans for the first time under new legislation coming in 2025. More than simply a compliance exercise, this should be a catalyst to drive strategic improvements to governance, operations and managing data.”
Real estate businesses – prepare for upcoming sustainability reporting requirements
New legislation coming into effect this year includes:
- The Corporate Sustainability Reporting Directive (CSRD) to report on environmental and societal impacts.
- A new Global Reporting Initiative (GRI) standard for biodiversity.
- Upcoming UK Sustainability Reporting Standards (SRS) changes on disclosures of sustainability-related financial information.
View RSM’s detailed Year in Review – Sustainability and ESG for more details on upcoming reporting requirements and how to prepare for changes.