SEC rules and implications for real estate

real estate

The need and requirement to measure and report on the carbon footprint and environmental impact of buildings and real estate is increasing.

The Securities and Exchange Commission (SEC) has laid out far-reaching climate disclosure rules that will impact building owners and private real estate funds. Under SEC rules buildings will be placed on a spectrum in terms of sustainability performance based on measurable, transparent data.

The SEC rules will force change in reporting as ESG data will be used as a competitive set of information at every level of the real estate business from leasing to buy/sell and capital formation. In other words, the lease will become the “green” lease, the building the “green” building, the loan the “green” loan, and the bond the “green” bond. 

The most important thing about the SEC rules is that, taken with existing European regulation like SFDR (Sustainable Finance Disclosure Regulation) and the EU Taxonomy, they pull the world’s two largest real estate markets (US and Europe) into a regulated ESG framework. The era of voluntary disclosures based on arbitrary standards and self-defined approaches will quickly fade. Market participants will now look to a smaller, legally binding set of prescriptions about what to disclose, when and how.

Sitting behind the sea change of a regulated ESG era are multiple knock-on effects. One is that the credibility and veracity of data underlying ESG disclosures becomes paramount. This means the broader proptech trend sweeping real estate will be called upon to provide sophisticated, scalable, compliance-grade technologies for ESG accounting. 

Europe has led the charge with emerging regulatory frameworks like TCFD (Task Force on Climate-Related Financial Disclosures), SDFR, and ECORE (ESG Circle of Real Estate). In the US, increased ESG disclosure has been demanded mainly by investors, although local ordinances like New York City’s Local Law 97 are starting to affect assets located in major metropolitan areas. 

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