ESG is no longer what it once was

Real estate companies are pushing ahead with the sustainability transformation of their assets. At the same time, the term ESG is being used less and less – and it is now much clearer what this transformation is actually about.

The term ESG is becoming less common. Some companies, particularly in the US, have dropped it altogether. Even events on the topic that were already scheduled are being cancelled at short notice, including in Germany: too little interest, too few participants.

The term is disappearing, sustainability topics have been struck off the agenda in the US, and political positions have also shifted in Europe. One might think that sustainability has been put on ice for the time being. But is that really the case?

The RICS Sustainability Report 2025 comes to a similar conclusion: globally, growth in demand for green buildings has slowed over the past twelve months, meaning that sustainability has lost some momentum. What matters here, however, is this: it is the growth in demand that has slowed, not demand itself. There is still rising interest in sustainable properties. And Europe is actually leading the way globally.

Long-term analysis also shows that sustainability remains deeply embedded in the strategies of the real estate industry. In the PwC and ULI trend study, 85 per cent of respondents say that sustainability is an important or very important long-term driver of transformation.

ESG has become more precise

So, what about ESG? Has the industry simply lost its appetite for the term, while little else has changed?

Not quite. The surveys suggest that ESG has become more precise and more targeted. There is also closer scrutiny of why investment in transformation is necessary. Perhaps that is why the term itself no longer quite fits.

The Emerging Trends in Real Estate 2026 study quotes a Europe-wide asset manager: "Sustainability is not an ideologically motivated cost burden. We make it consistently clear to our investors that it ultimately leads to better value performance."

And even though the link between sustainability and property value is often still difficult to quantify, more than half of respondents regard it as a given. The better a building’s energy performance, the more valuable it is.

Sustainability is also extremely important when it comes to access to attractive financing. This is evident, among other things, in the analysis of the factors driving the sustainability transformation of real estate. In first place: pressure from banks and financiers. Put simply, brown buildings are difficult to finance. The greener they are, the easier it becomes. Banks are driving the transformation forward. Some are now even being described as the real environmental ministers behind the scenes.

So, the question "Why should we care about sustainability?" now has a clearer answer than in the past: because it is a hard requirement, particularly when it comes to financing and value.

Energy efficiency is "the key benchmark"

That leaves the question of how: how can sustainability be implemented in a targeted way without getting lost in an abstract ESG concept? And here, too, a clear consensus is emerging: first and foremost, through energy efficiency.

According to PwC and the ULI Urban Land Institute, most respondents see energy efficiency as the most important criterion for good financing options. Last year’s trend barometer from Berlin Hyp came to the same conclusion. And the RICS Sustainability Report 2025 sums it up as follows: “While certifications continue to be highly valued, energy efficiency remains the key benchmark.”

For many real estate companies, energy efficiency therefore currently appears to be the key to implementing sustainability in a focused way – and to directly supporting business success.

This is easy to explain: the lower the energy consumption, the lower the ancillary costs. Owner-occupiers benefit directly. If the space is let, tenants benefit first – and ultimately owners as well, as energy efficiency increases the attractiveness of the space, its lettability and therefore the competitiveness of the property.

Current regulation is also primarily focused on energy consumption. The existing EU Buildings Directive, implemented in Germany as the Buildings Energy Act (Gebäudeenergiegesetz), requires owners to digitise building systems and energy consumption, with the aim of making them transparent and reducing them. Decarbonisation obligations are not set out in this legislation.

The revision of the EU Buildings Directive, which is still awaiting transposition into national law in Germany, goes a step further and sets binding targets for reducing energy consumption in the worst-performing buildings.

This is another reason why the energy performance certificate is so important for banks – and why some will not offer financing at all without a sustainability concept. In addition, reducing energy consumption is a measure that owners and building operators can actually implement and that lies within their sphere of influence. This is not the case with electrification or the use of district heating. Neither is yet fully decarbonised. Owners can only wait for the public sector or energy providers to address this.

Implementing energy efficiency without high costs

In surveys, investors and owners repeatedly cite excessive costs as a barrier to implementing efficiency measures. And depending on the measure, these costs can indeed be so high that an investment barely pays off.

That is why we – and our clients – are convinced that it makes sense to start with measures that offer the best cost–benefit ratio. For many larger commercial properties, this means digitally optimising existing building technology. Without expensive conversions or changes to the building envelope. There is savings potential in almost every building, regardless of age or condition.

Conclusion

The term ESG may no longer be in vogue. But the topic has not disappeared – it has become more precise. Sustainability is being implemented to pursue a clear business objective. The tool of choice: reducing energy consumption.