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ESG – and what about MEES?

The Irish News 26th June, 2023 – Jonathan Haughey

IN a commercial property sector where acronyms are all too commonplace and form the basis of everyday conversations, two are being heard increasingly more frequently, driven by the government’s agenda on climate change.

Firstly, ESG (environmental, social and governance) is a set of standards measuring a business’s impact on society, the environment and their corporate governance. While these standards are not exclusive to the property industry, they do have a very specific impact on the requirements of tenants and will therefore continue to shape the market moving forward. While ESG encompasses a broad range of topics, in a property context the key factors are as follows:

· Environmental – primarily focusing on the energy efficiency of a building, often assessed against sustainability rating systems such as BREEAM. From a property owner, investor or developer perspective, detailed consideration must be given to the environmental performance of an asset, as it may well have a strong impact on its attractiveness to prospective tenants when compared to similar offerings, or indeed to the asset’s capital value.

· Social – incorporating the health and wellbeing of a building’s occupants, driving the need for additional green spaces, break out areas and gyms, etc.

· Governance –concentrates on factors such as culture, diversity and reputation, not just of building owners, but also of building managers/staff, tenants and their suppliers.

To occupiers, especially larger blue-chip corporates, the importance is two-fold. Increasingly, companies are placing corporate social responsibility further up their agenda and are becoming better informed on the impact which a building may have on the environment. Additionally, staff wellbeing is monitored closely and much of this can be directly linked to the working environment.

A number of key legislative and policy changes have developed as a result of ESG and the overall green agenda in general, giving rise to another acronym, MEES, or Minimum Energy Efficiency Standards.

MEES are a set of regulations which require a minimum energy efficiency standard to be achieved before properties can be let or sold. It is important to note that these standards currently only apply to England and Wales, however, it would not be unreasonable to assume that Northern Ireland will follow suit in due course.

These standards are based on the Energy Performance Certificate rating of a property and the target dates are as follows:

· April 1 2023 (ie, already in effect) – it is unlawful to continue to let a commercial property with an F or G EPC rating, even if the lease was granted prior to the MEES Regulations coming into force. This is a minimum standard.

· April 1 2027 – the minimum standard raised to EPC rating C.

· April 1 2030 – the minimum standard raised to EPC rating B.

The impact of these regulations will be wide ranging, not only on tenants of commercial properties, but also their owners, shaping the long-term strategy of local and institutional investors alike, informing decisions on acquisitions, disposals and capex. It is therefore important that the potential impacts are considered now and dealt with accordingly.

:: Jonathan Haughey is a chartered surveyor in Lisney specialising in retail

By gemmahoran
26th June 2023