The findings were part of a report published by the Centre for Sustainable Governance and Law, created by UCL in partnership with Puma Property Finance , based on interviews with several funds (with over £1.5 trillion under management) and industry firms to establish the adoption of ESG in the property finance sector.
According to the research, larger banks and pension funds have adapted to increased public emphasis on ESG practices, but smaller organisations — such as property lenders — are facing challenges when trying to adopt the same approach due to a lack of skills, knowledge, funding and time to adapt to new operating and reporting environments.
The report has also indicated that smaller companies may struggle in adjusting as a result of a lack of global ESG standards, as well as conflicting reporting requirements and definitions — which are creating hesitancy and uncertainty in the market.
Concerns remain around greenwashing, whereby products which are advertised as sustainable, but may not deliver the outcomes intended.
The UCL research found that while some lenders comply with regulations, some may simply be paying lip service to the sustainability measures, what is described as ‘green hushing’.
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However, new FCA and EU reporting requirements are expected to impact medium- and smaller-sized property finance firms, the report predicts.
This is why the centre encourages the property finance industry to build and communicate their ESG position — by developing KPIs and transition pathways, as well as ways in which they will integrate reporting and remuneration strategies — ahead of the anticipated regulation from funders, which are expected to request more granular and transparent information.
Dr Armando Castro, lead author of the report and associate professor at UCL’s Bartlett School of Sustainable Construction, said: “Given the challenging regulatory and political backdrop, the pressure on companies to report and integrate ESG is growing and the reporting landscape is complex and dynamic.
“Property finance organisations that want to be ahead of the curve need to start developing, implementing and collecting meaningful, granular ESG data that might be used for potentially different reporting frameworks, investor requests, voluntary standards and future regulations.”
Paul Frost, managing director at Puma Property, added: “The findings of UCL’s research highlight the need for the property finance community to come together to provide targeted, implementable solutions that support the next wave of sustainable development in the UK.
“All of us in the industry are at different stages on this journey, but by sharing knowledge and ideas we can be most effective.