Green Premium

DateNovember 17, 2023

General definition of Green Premium

Green Premium refers to the additional costs of a sustainable strategy in terms of green energy compared to the use of standard tools and methods that are not sustainable. It refers to the dilemma of being net zero while performing activities. Green Premia allow real estate players to measure how much effort they still need to put into making changes and where it is relevant to put resources into solving problems the industry is facing nowadays.

The term Green Premium is a trending topic within the real estate industry. The past years have seen this sector subject to considerable changes to achieve carbon neutrality in light of the fact that the real estate industry represents 39% of the energy-related CO2 emissions. Therefore, it has become mandatory for real estate investors to align with the goals set during COP21. Likewise, the signature of the Paris Agreement by 195 countries to limit global warming emphasized the critical role of the real estate sector in achieving carbon neutrality across Europe by 2050.

The rise of a Green Premium market in a time of energy crisis

The Green Premium market has been rising since countries decided to align to achieve carbon neutrality, hence the rising of regulations addressing the reduction of CO2 emissions. The need for real estate investors and stakeholders to become increasingly transparent about their practices escalated green value from a plus to a requirement to avoid stranded assets. Stranded assets lose value due to environmental changes and the evolution and tighter enforcement of ESG regulations. They will not meet future energy efficiency standards and market expectations. Therefore, these assets yield more significant risks and expose their owners to a Brown Discounting

To avoid this, real estate investors need to follow the path to zero carbon, and Green Premium is a concrete way to get to that. In fact, having nearly zero energy buildings is an efficient way to lead you to Green Premium and, therefore, to energy consumption and better investments of your money with a better return on investment since green buildings deliver both higher asset values and increasing rental yields.

Green Premium impact, in a nutshell 

Yes, green-labeled buildings do involve capital costs. However, they achieve a higher financial return on investments, both in rent and sale prices, unlike stranded assets. Deepki’s latest report about the Green Premia made that especially clear.

When asked, more than half (56%) of real estate managers have also seen rental yields increase by between 16% and 25% as tenants are willing to pay more for sustainable buildings that reduce their service costs thanks to improved performance. More than a quarter (28%) of respondents say rental yields have increased by 11% to 15% for green buildings

On one hand, properties with poor energy ratings will face higher operation, insurance, and maintenance costs. On the other hand, investors have to win the trust of occupants. Real estate stakeholders are now more aware of the issues related to ESG and want their assets to follow the right path to net zero. Therefore, they have been increasingly demanding and challenging regarding their portfolio’s consumption and carbon footprint

Why you should include Green Premium in your ESG strategy

  • To avoid compromising your asset values and being exposed to Brown Discounting.
  • To achieve net zero carbon emissions while having a better return on your assets investments.
  • To win the trust of occupants.
  • To keep up with the constant rise and evolution of the regulations. For instance, the CSRD, Corporate Sustainability Reporting Directive, is the last EU regulation that requires companies to report on their ESG activities.

Read more: EU Green Deal: CSDR incorporated during COP27.

The need for an exemplary ESG strategy implementation

Demand for green buildings is now greater than for brown properties, and Green Premium has contributed considerably to real estate stakeholders. But to make it work, align with the green market, and avoid a Brown Discount, an efficient ESG strategy is a requirement. 
This is where you can measure how your ESG strategy impacts your assets. Environmental, Social, and Governance criteria can provide the primary keys to gathering data and better-performing assets. Deepki has helped real estate players save time and money by collecting the correct data and investing in an adequate ESG strategy. By designing a clear pathway to achieving their ESG goals, Deepki’s clients could put efforts and resources in the right place of action.