Implementing ESG into Real Estate Contracts E-Book

• Herausgeber: Haufe Lexware
• Kategorie: Fachliteratur
• Serie: Haufe Fachbuch
• Sprache: Englisch

Seitenzahl: 520

Veröffentlichungsjahr: 2025

Beschreibung

This book looks into different aspects of implementing ESG into real estate contracts from a European perspective. It covers general aspects, contract-type specific aspects and then property usage-type specific aspects. General topics cover legal frameworks, the social and governance perspective based on EU sustainable finance regulations. Contract-type specific questions cover different contract types. The team of authors then addresses specific issues relating to different types of property use such as office, retail, logistics, hospitality and data centres. The focus of the work is on EU, so that the content can provide food for thought for the work in different EU countries. The book thus supports practitioners in compiling their personal toolkit for use in individual cases.  Content: - Terms, concepts and basics of sustainability, CSR and ESG - What ESG in real estate contracts means - Standards for (non-financial) sustainability reporting, CSRD and ESRS - Climate litigation, energy and renewables, data - Sustainability and competition law, brownfields - Pre-contracts and recitals - ESG and real estate investment, leases, real estate financing

Leseprobe

Inhaltsverzeichnis

InhaltsverzeichnisHinweis zum UrheberrechtmyBook+ImpressumPreface1 General framework and concepts1.1 Introduction – words, contracts, real estate connection1.1.1 What chapter #1 is about1.1.2 What subchapter #1.1 is about1.1.3 Collecting the words, concepts, basics of sustainability, CSR, ESG(a) What does Sustainability/CSR/ESG mean? A very basic overview(b) What does Sustainability / CSR / ESG mean? Back to the roots(c) What does Sustainability / CSR / ESG mean? From 1001 definitions to CONCEPT, a MULTIFACETED approach – starting with WHY171.1.4 What does that mean for contracts?(a) What’s with the HOW? Getting a grip – what (type) of content could go into a contract?(b) Thought leadership(c) ESG content in contract drafting(d) Types of clauses(e) THINK! BEFORE YOU DRAFT. Further notes on clauses(f) There’s implementation, then there’s implementation1.1.5 What does ESG in real estate contracts mean? Use cases(a) Use case 1: Property developer’s commitment (for details regarding contracts in development, see #2.3)(b) Use case 2: Retrofitting existing buildings (for details regarding contracts in development, see #2.3, management contracts, see #2.5, regarding leases, see #2.6)(c) Use case 3: Sustainable property acquisition (for details regarding investment, see #2.4)(d) Use case 4: ESG compliance in property management (for details regarding management contracts, see #2.5)(e) Use case 5: Green financing by a bank (for details regarding financing, see #2.8)1.2 Legal frameworks and questions1.2.1 The question looming: What do I do with this mess? Introduction.1.2.2 SWOT analysis, legal practices(a) A SWOT analysis(b) Legal practices overview1.2.3 Spotlights on frameworks and laws(a) Spotlight #1 – global: 2015 – Agenda 2030(b) Spotlight #2 – global: 2015 – Paris Agreement(c) Spotlight #3 – EU: 2018 – Sustainable Finance Action Plan 2018; 2021 review(d) Spotlight #4 – EU: 2019 – European Green Deal (EGD)(e) Spotlight #5 – EU: 2019 – Sustainable Finance Disclosure Regulation (SFDR) and later Regulatory Technical Standards (RTS)(f) Spotlight #6 – EU: 2020 – Taxonomy Regulation and the Delegated Acts(g) Spotlight #7 – EU: 2022 – CSRD and later ESRS(h) Spotlight #8 – EU: 2024 – Energy Performance of Buildings Directive (EPBD)1.2.4 What’s what, who’s who – laws and actors(a) Sources of European Union (EU) law and hierarchy(b) Hard versus soft law(c) Bodies that might shape the arena of ESG in the EU1.2.5 Interpretation(a) Bodies that determine or may give guidance on interpretation of EU law(b) Interpretation of EU law(c) ESG and interpretation, or rather guiding principles?1.2.6 Contracts(a) Generic drafting notes for ESG in real estate contracts(b) ESG laws for a contractual setting1.3 Non-legal / measurables1.3.1 Introduction1.3.2 Frequently used terms(a) Benchmarks(b) Building certifications; screening by certification bodies or other experts(c) Building (material) passports(d) Codes of conduct, supplier codes of conduct(e) CRREM (Carbon Risk Real Estate Monitor)(f) Energy performance certificates (EPCs)(g) Environmental Product Declarations (EPDs)(h) Indicators, Key Performance Indicators (KPIs)(i) Level(s) framework(j) Life Cycle Assessments (LCA)(k) Life cycle cost assessments (LCC)(l) Policies(m) Rating144 systems(n) Renovation passports(o) Scoring systems(p) Standards (ESG)(q) Strategies (ESG)1.4 Reporting1.4.1 Introduction1.4.2 Sustainability (non-financial) reporting standards and legal frameworks, focus on CSRD1.4.3 Terms used in the context of non-financial reporting1.4.4 Use cases and clause suggestions and drafting notes1.5 Focus on the »E« – specific sustainability goals – ­environmental objectives and (DNSH or other) criteria1.5.1 Introduction1.5.2 A non-comprehensive list of environmental laws, frameworks and standards1.5.3 Recent »EU Sustainability Frameworks« – Taxonomy, CSRD, SFDR, ESRS, CSDDD(a) Taxonomy Regulation (environmental objectives)(b) CSRD, ESRS (environmental objectives)(c) SFDR (environmental objectives)(d) Corporate Sustainability Due Diligence Directive (CSDDD)1.5.4 Use cases, some notes for contracts1.6 Specific sustainability goals – the S and the G1.6.1 Overview – digging out the social and governance aspects that we regularly find within a real estate setting1.6.2 EU Taxonomy(a) Minimum Safeguards under Article 18 of the EU Taxonomy Regulation208(b) Social Taxonomy1.6.3 CSRD and ESRS223: Social and governance aspects1.6.4 SFDR and RTS1.6.5 Mobility1.6.6 Use cases / drafting notes(a) Minimum safeguards under Art. 18 of the EU Taxonomy Regulation(b) Social Taxonomy(c) SFDR(d) CSRD and ESRS(e) Mobility1.7 Supply chain laws, especially CS3D1.7.1 Introduction1.7.2 Some laws and standards(a) Laws EU and national(b) Further laws and standards1.7.3 CS3D outline1.7.4 CS3D – relevance to (real estate) contracts1.8 Litigation1.8.1 Introduction – the subject-matters of ESG disputes1.8.2 Scrutinise ESG related facts before including them in your contracts1.8.3 If the contract contains contentious expert issues, opt for arbitration1.8.4 Some remarks on climate litigation in particular(a) Causation of CO2 emissions(b) Protective purpose of norms for exercising due care1.9 Energy, renewables1.9.1 Introduction1.9.2 Typical renewable technologies that can be found in real estate projects across Europe(a) Solar PV(b) Solar PV combined with battery storage(c) Thermal energy storage(d) E-mobility(e) Energy hubs1.9.3 Contractual implications(a) Solar PV(b) Battery storage(c) Thermal energy storage(d) E-mobility1.10 How to deal with data?1.10.1 Introduction1.10.2 Personal data1.10.3 Non-personal data1.11 Sustainability and competition law in real estate ­contracts1.12 Brownfield investments: Forward-looking opportunities and challenges1.12.1 Introduction1.12.2 Definition of a brownfield1.12.3 Political classification of brownfields1.12.4 The myth of land scarcity1.12.5 Incentives in contracts1.13 Sustainability in public procurement law2 Questions specific to contract types2.1 Introduction2.2 Preliminary agreements and recitals2.2.1 Introduction2.2.2 Preliminary agreements(a) Documents(b) ESG considerations2.2.3 Recitals2.3 Property development (design / planning, construction, project management, supply, service and other)2.3.1 Construction endures – the lifespan of a building starts and ends with construction2.3.2 What is …? Context2.3.3 Sustainability in property development, ESG drivers and legalese(a) Layers, perspectives, entry points(b) Common practice and the rise of ESG2.3.4 Use cases(a) Use case 1: Design-build contract for a taxonomy-aligned office building(b) Use case 2: Equipment lease contract for a smart building project(c) Use case 3: Maintenance services contract for a green building(d) Use case 4: Consultancy agreement for a BIM project2.3.5 Where to find model clauses & industry standards2.3.6 Legalese(a) Different types of contracts(b) Typical challenges of design and build contracts(c) Legal challenges(d) Building information modelling (BIM)(e) Certification-specific contracts(f) FIDIC and Sustainability?2.4 Investment and ESG2.4.1 The enchantment of stranding risk – is that what drives us? Introduction2.4.2 Standards and investment approaches(a) Looking back to look ahead – a bit of history(b) The sector-agnostic (M&A) investment perspective(c) Impact investing – what’s the difference?323(d) Discussion with Tanja Volksheimer329 on impact investing2.4.3 Integrating regulatory frameworks, organisation-level responsible investment documents2.4.4 Does the investment match the approach and targets?(a) Sell-side – vendor due diligence, factbook, investment memorandum & ESG specifics – content(b) ESG screening (or »phase 1 due diligence«)(c) ESG due diligence (or »phase 2 due diligence«)2.4.5 Back to the roots – does the output effect the agreements?346(a) Introduction(b) Asset deal versus share deal as well as JV and forward deal considerations(c) Go – no go – what do we do with deal-breakers?(d) Pricing(e) Further review of ESG components(f) Diving into real estate / ESG specifics(g) Specifics – forward deal, joint venture agreement, impact investing(h) After the deal is before the deal – post-merger integration2.5 Management agreements2.5.1 Introduction2.5.2 Historical perspective and where we are now2.5.3 Up and down2.5.4 Again – it’s all about data2.5.5 Differentiation between different types of management agreements2.5.6 Role of management (including ESG) in letting, selling, financing2.5.7 Miscellaneous2.6 Leases2.6.1 Introduction. Not the first, not the last word on green leases2.6.2 What is a green lease? What other words are there for »green lease«?2.6.3 Drivers and legalese2.6.4 Content and standards(a) Standards(b) What’s specific to green leases? Some content(c) Food for thought: drafting notes for implementation2.6.5 Formal considerations, annexes / schedules2.6.6 More on implementation(a) A compass without direction? Do we know where we’re going?(b) Collaboration is key2.7 Sustainable use – sustainable land use, easements, ­heritable building rights and similar rights (not leases)2.8 Implementing ESG into real estate financing2.8.1 Introduction2.8.2 ESG Financing is foremost: Financing! What kind(s) of financing?(a) Which types of financings? For whom are they suitable?(b) What types of ESG linkage? Suitable for whom?2.8.3 ESG-related frameworks of relevance to ESG financing2.8.4 Drafting ESG financing contracts, (involuntary) greenwashing(a) Drafting ESG financing contracts(b) Risks of (involuntary) greenwashing3 Questions specific to types of use (of the properties)3.1 Introduction3.2 The office. Taking offices to the next level3.2.1 Introduction3.2.2 Classification and use of office buildings3.2.3 Indicators, metrics and methods for ESG evaluation3.2.4 Focus on transformation3.2.5 Future office work in a built and hybrid environment3.3 Retail. Retail & ESG & contracts – why, what & how to implement3.3.1 Indroduction3.3.2 Specific characteristics of retail3.3.3 ESG-relevance of retail3.3.4 Implementation of ESG criteria in contracts3.4 Logistics – ESG – location – infrastructure – adapted buildings3.4.1 Introduction3.4.2 Practical example: Gap site in Frankfurt, former areas of the Main Freight Station3.4.3 Conversion of vacant office buildings in peripheral locations3.4.4 Multi-storey buildings3.4.5 Parking areas3.4.6 Potential areas around Seveso facilities predestined for settlement3.4.7 What’s this got to do with contract drafting of real estate contracts?3.5 Hospitality3.5.1 Introduction / Industry environment3.5.2 ESG and its impact on hospitality contracts3.5.3 Leases3.5.4 Franchise agreements3.5.5 Management agreements3.6 Student Housing3.6.1 Introduction3.6.2 Owner / operator agreements3.6.3 Leases with the students3.7 Data centres3.7.1 Introduction3.7.2 Electric power3.7.3 Environmental constraints3.7.4 Permitting and zoning3.7.5 Contracting model in data centre construction contracts3.7.6 Particular focus on health and safetyAbout the editorAbout the authors468Ihre Online-Inhalte zum Buch: Exklusiv für Buchkäuferinnen und Buchkäufer!Stichwortverzeichnis

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Sabine Wieduwilt

Implementing ESG into Real Estate Contracts

1. Auflage, Januar 2025

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Preface

Sabine Wieduwilt

This is not a book about whether ESG is good or evil; it’s not about the politics or the carbon or GHG emissions attributed to the real estate sector. Nor is it about the extent to which solid surfacing or child labour is still being used, or everything that could go wrong. It’s certainly not about blaming and shaming. It is about how we can make ESG work – how it should or could be done. Above all, it’s about offering a toolkit.

In the past five years much has been written about ESG, including about ESG in real estate – seemingly more than was written in the previous thousand, at least in the real estate industry. Maybe this is due to the growth of social media commentary, maybe not. SustainabilitySustainability / CSRCSR / ESG is not a new topic. However, the talk of Sustainability / CSR / ESG has spread across the globe much like the hurricanes and other ever-more common extreme weather events seen almost daily in the news, and not entirely unrelated to the way we have been treating the planet and its inhabitants, human or otherwise.

At the same time, in times of crisis, we question the sense of engaging in this debate, when there seem to be more pressing needs. Nevertheless, even in these ‹interesting times’, sustainabilitySustainability / CSRCSR / ESG has a place in our thinking and, far from being detrimental to business, can be a profitable endeavour. Furthermore, can we really go back to old ways of thinking? In Europe, during the last economic crisis, we heard similar arguments: we need to focus on the problems of today; we can’t afford to invest in our future. Where does such myopia lead? And if we can’t go backwards, what can we do? Perhaps the answer is to move forward, but in smaller steps?

The role of corporations in being part of both the problem and the solution of the climate crisis and sustainability has never been more pronounced. Pressure from activist investors and financial institutions is holding companies increasingly accountable for their environmental, social and governance, or ESG, performance.1

This comes from the introductory statement to »The ESG and sustainability landscape« at the IBA conference on 29 March 2023. No need to say:

ESG as a concept has taken on an increasingly significant role within the wider business community. One way in which companies can embrace sustainable business practices is through incorporating ESG factors into commercial contracts. As such, there has been a proliferation of ESG-specific requirements in commercial contracts over the last ten years, including by reference to increasing legislation and regulation in this area and voluntary standards. These clauses are incorporated into many different types of contracts such as supply contracts, transactional documents, public sector contracts, employment agreements, shipping agreements, and insurance agreements.2

So what do I want to do with this book Implementing ESG into Real Estate Contracts. A guide and toolkit for practitioners?

I have been thinking about this book for quite some time. What I saw being developed were publications on laws and regulations and ESG standards, guidance on different contract types in real estate, led by initiatives in the industry. There has been some great thought leadership. From my point of view, the most prominent seemed to be the standard-setting on green leases, but that was not the only type of contract being looked into more deeply through the sector and practice lens.3

There are many individual publications on the application of individual problems, on individual types of contracts, such as green leases. However, there is little that brings the topics together, the common denominator, the structures of implementation in the individual contract types and the specific application in individual cases. For market participants in the real estate industry, the biggest challenge seems to be to join the dots of different laws, regulations and standards to create a single cohesive picture.

When you go into the detail of implementing ESG into contracts, it isn’t that easy. Of course, there’s the legal bit, then the commercial and industry-specific bit; then there’s the bit about implementation in the company and with your contract partners. For the legal bit we tend to look at one part but ignore the other – in the sense of »yeah, this might have a connection to data protection«. Same with »what about antitrustantitrust?« and then we sometimes leave that part hanging somewhere, put it off until later. Of course, in this book we have also left some parts hanging somewhere to be addressed later.

For the »contract implementation« bit – How do you implement contracts? There’s the idea, the concept, the content, the draft, the negotiations, the redraft, the finalizing, the signing. Then it may still be just a piece of paper, or perhaps a ream, or nowadays a huge piece of data, but it still might be a piece of paper that gets lost in a drawer or in the infinity of the electronic universe. What types of contracts or clauses have a chance or a higher likelihood of being used or lived between contract partners or even within a company or companies and its or their dealings? Is there a chronology or procedure that describes how contracts are implemented within an organisation?

Despite the fact that there is no one common ESG picture for the real estate industry, not even for a single property, what I wanted to achieve with this book was to combine different perspectives on ESG and real estate and the drafting of contracts. I have had the opportunity to regularly exchange and collaborate with several participants in the real estate industry and, since 2023, also with the wider Dentons Europe Real Estate ESG Task Force, comprising experts from 15 countries – which keeps the challenge and discussion going – we see that we have common challenges and face similar issues – even where we don’t have the same underlying national laws, the issues we need to consider in terms of real estate and ESG are similar.

»And, when you want something, all the universe conspires in helping you to achieve it.«4 For this book, there are some stories to tell that can be drawn from the discussions with other industry sectors or practices. However, what is noticeable is that we’ve got things we know about ESG that are more relevant to the industry. And I’m very lucky that I have encountered many persons that have inspired me along my career – such as our inspirational real estate leaders across Europe, including the UK, and across various countries, our trendsetting guru when it comes to ESG, Birgit Spießhofer, my friend Anja Kleinke, who inspired me to join the group of authors to write the book ESG and Real Estate in 2021, as well as those persons who, when I asked if they would join me in putting this together reacted with an instantaneous »yes« – Bettina Noé from Haufe, my very dear colleagues and friends who are in our great Dentons Europe Real Estate ESG Task Force, starting with Sonja Taghiyeva, further colleagues from the firm, such as Melanie Bressel, my great assistant for ten years now5, as well as great industry professionals whom I have encountered as role models for their expertise as well as challengers of standard ways of thinking. And, last but not least, my dear husband and children, who have challenged the standard ways of thinking, without trying to be missionaries about it. My children gave me the idea for the game you can download as part of the online content to this book, which leaves winning partly to chance and partly to your knowledge of ESG and real estate6. This book was written in a similar way as we’ve been having talks on ESG in the market and within the firm: it’s an act of listening, brainstorming, structuring, writing what comes to mind, reviewing what we’ve done, trying things out, starting all over again. We’re not quite at the point where the market has found its solutions, and we just have to copy-paste for the different situations whatever the standards tell us to do.

The book provides an overview of the content and systematics of implementing ESG issues and ESG regulation in real estate contracts. First of all, the starting points of ESG and ESG regulation for contract design are described in general terms. Subsequently, the implementation for individual contract types and asset classes is presented.

In chapter #1, we combine the framework of thinking ESG, of thinking ESG and real estate and contract design and drafting in general, with a focus on some aspects we might encounter in real estate.

In chapter #2, we dive a bit deeper into specifics that might be relevant for certain contract types in real estate.

In chapter #3, we look at different usage types of real estate.

In what order should you read this book? Any way you like. A good friend told me she reads the book ESG and Real Estate like this: »Think of a solution you need, open the book and check if the answer will find you on the page you’re opening.«

We want to stay true to the word »toolkit« – we want to give an impression of a topic that we deem relevant, then add notes on what might be relevant for contracts. This is why we have kept the book short. This is also why you might not find your definitive answer to your question in these pages.

Whoever has looked into ESG and real estate knows that a topic that fills a single page in this book could fill libraries elsewhere. This book is only intended to inspire further thinking. It does not replace legal advice. I am not a compliance specialist – and don’t want to give the impression that I am. We have, however, generally limited the content to commercial real estate. It will be up to the practitioners to process what makes sense for residential real estate.

What is the intention of this book? The intention is to provide an overview of questions that users ask themselves, to contribute to the implementation of ESG in contracts (real estate), to help practitioners construct their personal toolkits for use in individual cases. The book is intended to serve as a call for feedback and discussion.

»In addition, the benefits of ESG measures are not always immediately visible and often require a long lead time – especially in the real estate sector.« (translated quote from Consultancy AgreementIvonne Mundil, Trei Real Estate).7 Exactly – so why don’t we start, if we haven’t already?

1International Bar Association (ibanet.org), The ESG and sustainability landscape, 2023, https://www.ibanet.org/podcast:The-ESG-and-sustainability-landscape, accessed 09.05.2024.

2International Bar Association (ibanet.org), Report on use of ESG contractual obligations and related disputes, 2023, https://www.ibanet.org/report-on-use-of-ESG-contractual-obligations, accessed 16.04.2024.

3Sabine Wieduwilt holds the rights to all illustrations, with the exception of illustrations (Abbildungen) that are marked separately, and the illustrations referring to official sites, such as eurolex.

4Paulo Coelho, The Alchemist, 1988.

5Cheers also to Andrew Nathan, who agreed to review three chapters I authored or co-authored to improve the English.

6Please see game for ESG and real estate in online content to this book.

7»Zudem sind die Vorteile von ESG-Maßnahmen nicht immer unmittelbar sichtbar und benötigen – vor allem in der Immobilienbranche – einen oft langen Vorlauf.« Mundil, Trei Real Estate, ESG-Regulierung stellt Projektentwickler vor große Herausforderungen, ESG 2023, pp. 345, 346.

1 General framework and concepts

1.1 Introduction – words, contracts, real estate connection

Sabine Wieduwilt

»A journey of a thousand miles begins with a single step.« –J.R.R. Tolkien, The Hobbit

In chapter #1, we’d like to combine the framework of thinking ESG, of thinking real estate contract design and drafting in general, with a focus on some aspects we might encounter in real estate.

1.1.1 What chapter #1 is about

Chapter #1 aims to give an overview.

Chapter #1 is intended to state the general meaning what might relate to several specific details and scenarios, before chapter #2 proceeds with different contract types in real estate and chapter #3 looks at specific usage types of properties.

In this chapter #1 we keep changing perspectives. #1.1 raises the questions: What is ESG? Where does the acronym ESG come from? The history and where we are now in a nutshell. We also highlight ideas in reference tools for ESG and contract drafting in general.

In the next subchapters, we start with changing perspectives. We want to stay true to the goal of providing one more tool to practitioners who have to deal with or draft contracts in the real estate sector, and including ESG perspectives to this tool. In each next subchapter we shed light on at least one idea or item related to contract drafting.

Subchapter #1.2 looks at different legal frameworks and questions related to ESG and real estate, starting with some milestones at global and European level, as well as underlying standards for frameworks or step plans, or the action plans that preceded them.

We change our thinking in subchapter #1.3 by focusing on other topics relevant for drafting contracts, including for example building certification, the CRREMCRREM, ratingrating systems, scoring, benchmarksbenchmarks, policies and standards.

A separate subchapter #1.4 is dedicated to reporting, of course, with a focus on CSRDCSRD.

We then switch perspective again and look at certain sustainability goals. Subchapter #1.5 focuses on environmental objectives.

Subchapter #1.6 looks at social and governance perspectives (S&G).

In subchapter #1.7 we then again home in on supply chain laws, with a special focus on CS3D.

In subchapter #1.8 we look at litigation.

In subchapter #1.9 the key focus is energy and renewables, also looking into smart meteringsmart metering and e-mobility.

Then we want to spotlight areas that are connected or may be triggered by ESG-related advice, such as data protection (#1.10), competition (#1.11), brownfield (#1.12), or procurement (#1.13).

1.1.2 What subchapter #1.1 is about

Subchapter #1.1 is talking about the basics – Trying to understand what we are talking about – common words, ­acronyms, common concepts and themes, the basics on sustainability, CSR and ESG in #1.1.3, approach to contracts in #1.1.4, and the connection to real estate with use cases in #1.1.5.CSR8

1.1.3 Collecting the words, concepts, basics of sustainability, CSR, ESG

If I want to stay true to the idea of creating a toolkit, there has to be some understanding about the points of reference that are used for contract drafting. If I haven’t got a clue what I’m talking about, I can’t draft a contract. A friend of mine, after listening to a webinar hosted by our firm, told me that lots of words and terms being used by the speakers in the webinar were not part of our common language – at least not before this whole topic of ESG came into play. We want to dedicate significant space to defining words, acronyms or concepts and anything else that needs to be defined or redefined, and to giving examples where this would help the reader.

(a) What does Sustainability/CSR/ESG mean? A very basic overview

Why don’t we start with the SustainabilitySustainability / CSRCSR / ESG lexicon – common words, themes, acronyms used in the context of Sustainability / CSR / ESG. What is the meaning of Sustainability / CSR / ESG? Some history. Figure 1: Sustainability, CSR, and ESG: definitions and themes, evolution and history gives an impression of the topics that maybe coveredby sustainability / CSR / ESG, definitions and themes, evolution and history:

SustainabilitySustainability, CSRCSR, and ESG: definitions and themes, evolution and history:

SustainabilitySustainability

Corporate Social Responsibility (CSRCSR)

Environmental, Social, and Governance (ESG)

Meaning:

The ability to maintain or improve certain essential processes or states over time. In the context of environmental and social governance, sustainability is about meeting the needs of the present without compromising the ability of future generations to meet their own needs. This concept is deeply rooted in the idea of ecological balance and has expanded to include economic and social dimensions, often encapsulated in the three pillars:9

A business model in which companies integrate social and environmental concerns into their business operations and interactions with stakeholders. CSR goes beyond mere compliance with legal requirements; it involves proactive investment in human capital, environmental sustainability, and stakeholder relations.10 CSR initiatives can include:

Criteria, which are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities in which it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Key ESG themes include:

Details:

• Economic sustainability ensures that business practices can be maintained long-term without harming social or environmental aspects.

Social sustainability involves managing relationships with employees, communities, and other stakeholders in a manner that supports the well-being of society.

Environmental sustainability focuses on conserving natural resources and reducing the impact on ecosystems.

• Philanthropy: Donating money, goods, or services to social causes and non-profits.

Environmental efforts: Engaging in sustainable practices and reducing the carbon footprint.

Ethical labour practices: Ensuring fair labour practices within the company and in the supply chain.

Volunteering: Encouraging employees to volunteer their time to worthy causes.

• Climate change and carbon emissions

Resource depletion, including water

Waste and pollution

Deforestation

Worker exploitation and community impacts

Board diversity and structure

Executive compensation

Corruption and bribery

History:

The history of these concepts can be traced back to several key developments:

SustainabilitySustainability: The concept of sustainability was significantly advanced with the publication of the Brundtland Report in 1987, formally titled »Our Common Future« by the World Commission on Environment and Development. The report highlighted the need for sustainable developmentsustainable development and introduced the definition that is widely used today. Sustainable development is thereby defined as the development that meets the needs of the present without compromising the ability of future generations to meet their needs.11

CSRCSR: The term »corporate social responsibility« was mentioned by Howard R. Bowen in his book »Social Responsibilities of the businessman« in 1953, in which Bowen advocated for greater contribution to civil society by large corporations in the US. Social, civil rights, womens, consumer movements in the 1960s and 1970s played a role to shape societal expectations towards companies, not only responsible for maximizing profits for shareholders, but for impacts on stakeholders.12

ESG: The concept of ESG was more formally introduced after a letter of Kofi Annan, in 2004 in a landmark study titled»Who Cares Wins,« which was endorsed by the United Nations. This report argued that incorporating ESG factors into capital markets makes good business sense and leads to more sustainable markets and better outcomes for society.13 Shortly afterwards in2005 the »Freshfields Report« was published, and in 2006 the (UN) PRI were introduced.

Figure 1: Sustainability, CSR, and ESG: definitions and themes, evolution and history

CSRCSR is the responsibility of enterprises for their impact on society14 (including externalities more directly in investment strategies).

More recently, the terminology / acronym ESG was developed by the financial ­industry.

The concepts of sustainability, Corporate Social Responsibility (CSRCSR), and Environmental, Social, and Governance (ESG) criteria are integral to modern business practices and investment strategies, focusing on the long-term viability of businesses while considering their impact on the environment and society. Over time, these concepts have evolved from nice-to-haves into essential components of businesses’ strategic planning. They are now considered critical for risk management and for identifying opportunities for growth and innovation. The increasing importance of these concepts is also reflected in the rise of impact investing, socially responsible investing (SRISRI), and the integration of ESG factors into mainstream investment decision-making15.

(b) What does Sustainability / CSR / ESG mean? Back to the roots

With roots we think of trees. Yes, sustainability has something to do with trees. Almost every book about sustainability mentions these trees somewhere.

The concept of ‹sustainable developmentsustainable development’ was globally inaugurated by the Brundtland CommissionBrundtland Commission in 1987, but it was inspired by the earlier concept of ‹sustained yield’, which had been the doctrine of international forestry for almost two centuries. Very often, the conceptual history of ‹sustainable development’ and its roots are traced back to forestry terminology and practice. Thereby, sustainability is a concept that emerged from the professional terminology of forestry and was first coined by Hanns Carl von CarlowitzCarlowitz in his ‹Sylvicultura oeconomica’ (1713). In this book, Carlowitz defined sustainability as a method of conserving and cultivating timber, so that there would be a continuous, steady and sustainable use of this natural resource. He based his idea on the principle of balancing the renewal and consumption of wood and taking into account the interests of future generations and posterity. He also advocated for saving timber, finding substitutes, and planting wild trees as practical measures to achieve sustainability.16

(c) What does Sustainability / CSR / ESG mean? From 1001 definitions to CONCEPT, a MULTIFACETED approach – starting with WHY17

Again: What does Sustainability/CSRCSR/ESG mean? The hard part about sustainability/CSR/ESG is that it’s not a fixed point on the horizon I can focus on; rather, the horizon keeps changing. We’ll sometimes need to switch perspectives – starting with the words, acronyms, concepts, themes. For CSRCSR/ESG there is not one but (way over) 1001 definitions; we need to take a conceptual approach.

Now again, we go backwards to the reason why this came up: States make regulations within their borders; multinational companies don’t limit themselves a priori, there is the risk that remains that what is not allowed in one part of the globe, the way business is conducted, is then allowed elsewhere, and there goes the business. Again, that’s not good or evil in itself, it’s the way business needs to be oriented to survive in order to make business. However, there’s a limit to the way values work. That’s where CSR/ESG comes into play. Now we’ve taken account of the fact that CSRCSR is a global topic; but there is no one global government.

Thus, there is a governance gap. This gap is filled by different types of rule-setting.

Figure 2: Copied from © Birgit Spießhofer

There are lots of stakeholders; lots of rule-givers. Best illustrated by Spießhofer, the current situation for multinational companies can be seen in the diagram in Figure 218.

Spießhofer19refers to SustainabilitySustainability / CSRCSR / ESG as a multifaceted guiding principle for the comprehensive reorientation of politics and economy. It encompasses the economic, ecological and social dimensions of responsible and long-term oriented business conduct, as well as the role and impact of companies in society and their global responsibility for human rights and the environment. It is shaped by a variety of actors and instruments, including international and European soft and hard law, codes of conductcodes of conduct, market mechanisms, ratings, standards and stakeholder engagement. It also implies a process of multiple boundary crossings and revaluations, such as the extension of the corporate responsibility sphere to the entire value chain, the integration of ESG criteria into corporate strategy, risk management and reporting, and the consideration of stakeholder interests and long-term perspectives in corporate governance. Global topic, governance gap, CSR/ESG and rule makers. We’ve got a global challenge due to the way business has developed; we’ve got a governance gap; this gap was filled by more than just the states’ legislators and authorities.

If we’re thinking in the terms of Simon Sinek’s GOLDEN CIRCLE – That does seem to be our WHY for ESG: Driving behaviour to reach across the boundaries of what keeps a company profitable, and even to reach across country borders.

1.1.4 What does that mean for contracts?

I believe we’ve covered a bit of the magic WHY. What about the HOW?

(a) What’s with the HOW? Getting a grip – what (type) of content could go into a contract?

»A multifaceted approach, not one but 1001 definitions, or rather a concept«20 – that’s not a statement to put into a contract, not directly at least. At least for real estate contracts, if we’re being honest, we haven’t included ESG in contracts for centuries. Do we have to start now?

We could get all theoretical here and review different contract theories – there are various areas of legal expertise involved. We could now talk »top down« and talk about the laws and regulations first (see #1.2), we could talk about concepts, methods, frequently used terms (see #1.3), or any other detailed questions. Of course there’s laws. But then again, there’s realities in which the laws don’t make sense alone, and a law mostly cannot guide you. Very generally speaking: Go from the »bottom up«. What’s the pragmatic approach when you need to integrate a complex scenario into an existing contractual framework? In most cases, you look at what others have done, start to copy, and then reflect whether it makes sense.

So going forward, we’ll sometimes try to copy-paste our way through this book, gathering good ideas from great thoughts we find elsewhere, reflecting on the tools we’ve been given. Well, that’s not so easy for ESG, as ESG hasn’t been around for quite that long. Yeah – when we’re talking about a green lease, there’s tons written about them, but what about the new stuff? How do we include that? Do we need to?

(b) Thought leadership

This part #1.1 is about general stuff. There’s great thought leadership out there on ESG and contracts; for example, there are various initiatives with guidance and in several instances wording, among them:

Report of the IBAReport of the IBA (International Bar Association: Report on use of ESG contractual obligations and related disputes. ESG Subcommittee of the IBA Arbitration Committee)21 – The IBA report covers the following key topics: the trends in ESG clauses in commercial contracts and investment treaties, the resolution of ESG disputes in litigation and arbitration, and the survey results on the prevalence and impact of ESG clauses. The report also provides suggestions for ESG clauses for contracts, based on best practices and examples.

The Chancery Lane Project (TCLPTCLP) – TCLP is a charity registered in the United Kingdom, working in over 110 countries, which strives to help organisations reduce emissions using the power of legal documents and processes.22 TCLP provides model clauses for net zero standards for example for suppliers, sustainability clauses in supply chain contracts, and green loan starter packs, as well as a glossary.

United Nations Principles for Responsible Investment (UN PRIUN PRI)23 – The UN PRIPRI is a voluntary initiative launched in April 2006 to guide institutional investors in integrating environmental, social, and corporate governance (ESG) considerations into their investment and ownership decisions. Signatories aim to align their activities with global societal goals, including the UN Sustainable Development Goals (SDGsSDGs). Regarding model clauses, the UN PRI has provided guidance on the appointment of investment managers24. Where it does not directly provide model clauses, it offers a range of resources and tools that may include guidance on integrating ESG issues into investment and ownership practices, which could indirectly assist in the creation of model clauses. For example, for sample investment mandate clauses UN PRI refers to the ICGNICGN25:

International Corporate Governance Network (ICGNICGN) – ICGN includes model contractual terms between asset owners and their fund managers as of 2012.26

Business & Human Rights Resource Centre Registered Charity in England & Wales27– Model Contract Clauses to Protect Workers in International Supply Chains28

Better Buildings Partnership (BBPBBP) – The Better Buildings Partnership (BBP) is a not-for-profit association of commercial property owners working together to improve the sustainability of the existing commercial building stock. The BBP operates primarily in the United Kingdom and provides a set of model green lease clauses to assist in the implementation of sustainable practices in property management.29

The British Institute for Investors (BIIBII) is a UK-based organisation that focuses on investor education and advocacy. Regarding model clauses, BII’s ESG Toolkit aims to offer practical guidance for responsible investors in emerging markets« – with options to look into tabs for financial institutions and fund managers30.

Investment treaties – UNCTAD and universities worldwide – With a collaborative initiative between UNCTAD and universities worldwide »The University IIA Mapping Project« is mapping the content of international investment agreements (IIAsIIAs); the resulting database is intended to serve as a tool for policymakers, researchers and other investment and development stakeholders to understand trends in IIA drafting, assess the prevalence of different policypolicy approaches and identify treaty examples.3132

The Hague Rules on Business and Human Rights ArbitrationThe Hague Rules on Business and Human Rights Arbitration offer model arbitration clauses for pre-dispute submission to arbitration, accommodating the specific context of business and human rights disputes.33

The American Bar Association Model Contract Clauses (MCCs) 2.0American Bar Association Model Contract Clauses 2.0 include mutual obligations for buyers and sellers with the goal to combat abusive practices in supply chains through human rights due diligence.34

The Responsible Contracting Project Group including reference to the MCCs, investor guidance, supplier model contract clauses, a CSDDD brief, European Model Clauses (EMCs) and a buyer code35.

While not all of this refers to EU specifics, it does bring across great thought leadership. In any case, the specifics will have to be changed to match certain jurisdiction or setting.

(c) ESG content in contract drafting

According to the Report of the International Bar Association’s (IBA) ESG Subcommittee on the use of ESG contractual obligations and related disputes, »[o]ne way in which companies can embrace sustainable business practices is through incorporating ESG factors into commercial contracts.« Also: »Regardless of the industry, sector or type of contract, ESG clauses provide for socially conscious standards of behaviour, and relate to, inter alia:

environmental laws or regulations, such as the use of specific products or packaging and shipment requirements;

human or social rights or labour rights, including laws or regulations that prohibit the engagement of child labour or impose obligations to provide a healthy and safe work environment or to take steps to ensure that the companies are not supporting harmful practices through their supply chain, such as the Modern Slavery ActModern Slavery Act 2015 in the UK, obligations to withhold from engaging in or working with companies linked to bribery and other corrupt practices, including laws or regulations such as Foreign Corrupt Practices ActForeign Corrupt Practices Act 1977 in the US and Bribery ActBribery Act 2010 in the UK; and

compliance with voluntary standards for ESG issues such as the United Nations (»UN«) Guiding Principles on Business and Human Rights, Equator PrinciplesEquator Principles and the International Finance Corporation (»IFC«) Performance Standards.

By introducing these commitments into contracts, companies seek not only to avoid harmful business practices, but also to improve stakeholder relationships, achieve wider reputational benefits and ensure regulatory compliance.«36

According to the IBA ReportIBA Report

ESG clauses are incorporated into contracts to encourage responsible business practices and ensure regulatory compliance;

their use is driven by increasing legislation and regulation in the area of ESG and voluntary standards;

corporations undertake ESG due diligence as part of their usual investment process, which can influence the decision to enter into contracts with relevant counterparties;

ESG clauses aim to improve stakeholder relationships, achieve reputational benefits, and avoid harmful business practices;

ESG clauses often refer to ESG guidance and standards such as the Equator PrinciplesEquator Principles, the UN Guiding Principles on Business and Human RightsUN Guiding Principles on Business and Human Rights, and the Green Loan PrinciplesGreen Loan Principles;

ESG warrantiesESG Warranties are significant in contracts across different sectors;

Compliance and performance metrics clauses are most commonly found in supply contracts and shareholder agreements, and are likely to increase due to pressure to disclose and report on carbon budgets37.

(d) Types of clauses

According to the IBA ReportIBA Report on the use of ESG contractual obligations and related disputes, »Survey results: prevalence of ESG clauses, impact on business and human rights, and best practice«, and »ESG contractual clauses come in different shapes and sizes so it is hard to do more than describe the general nature of such clauses.«38

The IBA report identifies various types of ESG clauses that are used in commercial contracts, such as ESG warranties, due diligence clauses, ESG performance metrics, monitoring and reporting, compliance requirements, contractual remedies, indemnity clauses, and termination clauses. The report explains the purpose and scope of each type of clause, and provides examples from different sectors and jurisdictions. The report also discusses the ESG obligations that are increasingly being included in investment treaties, such as preambular references to sustainable developmentsustainable development, substantive ESG-related standards, carve-outs for the right of states to regulate on ESG matters, and mechanisms to incentivise compliance with ESG standards. The report analyses how tribunals may consider an investor’s compliance with ESG standards when awarding compensation. 

Figure 3: Overview of ESG Clauses aims to provide an overview of ESG clauses used for contracts in a commercial context. The table below summarises the main types of ESG clauses, their content, purpose, and examples of sources and model clauses. The table also indicates the differentiators for each type of clause in the ESG context, i. e., how it differs from or adds to similar clauses in non-ESG contracts39.

Type of clause

Content

Purpose

Examples of sources and model clauses

Differentiators

Target-setting

Goals or plans for ESG performance or transition, such as net zero emissions or minimum ESG ratings

To align the parties’ objectives and expectations with global or local ESG standards and principles

IBA ReportIBA Report, p. 23, 24 (on Investment Treaties40); TCLPTCLP Guides and model clauses on climate and emissions 41

To reflect the growing demand and responsibility for ESG compliance and impact in business activities and relationships

Due diligence

Processes and tools to identify, assess, and disclose ESG risks and impacts

To facilitate informed decision-making and risk management regarding ESG in transactions and contracts; differentiate between transaction-related ESG due diligence and further obligations

IBA ReportIBA Report, p. 11, 12, 20, 21; ABA Model Contract Clauses 2.0; TCLPTCLP Guide and model clause on climate information in due diligence questionnaires42

To address the potential or actual adverse ESG impacts of the parties’ activities or relationships and to align them with internationally recognised standards and principles

Compliance

Obligations to adhere to applicable ESG laws, standards, policies, codes of conduct and management systems

To ensure ESG compliance throughout the value chain and to mitigate the risks of non-compliance

IBA Report, p. 14, 21, 24, 25; TCLP Guides and model clauses on climate obligations

To align business goals with ESG values and to respond to the expectations of external stakeholders, such as investors, regulators, and customers

Obtaining information/data

Obligations to provide and co-operate with information and data requests on ESG performance and compliance

To enable monitoring, reporting, and verification of ESG matters

IBA Report, p. 13, 14; TCLP Guide and model clause on obtaining information on contract emissions

To enhance transparency and accountability on ESG matters and to support ESG disclosure and reporting requirements

Monitoring and reporting

Obligations to measure, evaluate, manage, and report on ESG performance and compliance, and to submit to external verification or assurance

To demonstrate ESG compliance and impact and to enable continuous improvement and stakeholder engagement

IBA Report, p. 13, 14; TCLP Guides and model clauses on emissions reporting and verification

To incorporate ESG compliance throughout the value chain and to align the parties’ activities with global or local standards and goals

Warranties and indemnities

Assurances or promises on ESG matters that can give rise to claims for damages or compensation when breached

To allocate ESG risks and liabilities between the parties and to provide remedies for ESG breaches

IBA Report, p. 10, 16, 21; TCLP Guide and model clause on ESG warrantiesESG Warranties and indemnities; Article 9.8 of Colombia-Spain BIT on Liability for Environmental Damage, IBA Report, p. 84

To target specific ESG requirements relevant to the parties, such specific to jurisdiction, industry, risks revealed during due diligence, and other matters that come to light between signing and closing

Remediation

Processes and consequences for remedying ESG breaches, such as corrective actions, compensation

To ensure that parties take responsibility for preventing or mitigating adverse ESG impacts and remediate actual impacts

IBA Report, p. 15, 21, 22; ABA Model Contract Clauses 2.0 on remediation of adverse human rights impacts; TCLP Guides and model clauses on remediation, see also term as used in EU Corporate SustainabilitySustainability Due Diligence Directive

To restore affected people or environments to the situation they would have been in had the adverse ESG impacts not occurred, and to comply with existing or proposed legal frameworks on human rights due diligence and remediation

Termination

Rights to terminate the contract in case of serious or persistent breaches of ESG obligations or in case of force majeure events related to ESG matters

To ensure compliance with higher ESG standards and to manage the risk associated with non-compliance

IBA Report, p. 16, 20, 21; TCLP Guides and model clauses on termination for ESG breaches; EU Corporate SustainabilitySustainability Due Diligence Directive43

To reflect the potential liability and reputational risks that parties may face for failing to comply with ESG standards and expectations in their operations and transactions

Incentive

Provisions that encourage or reward one party for complying with ESG standards or achieving ESG goals, or that penalise or deter one party for failing to do so

To align the interests of the parties, create a positive feedback loop for ESG performance, and reduce the risk of ESG disputes or breaches

IBA Report, p. 8, 26; TCLP incentivise emissions reductions through gain-share (Zeela’s Clause); ABA Model Contract Clauses 2.0 on remediation of adverse human rights impacts

To reflect the growing demand and responsibility for ESG compliance and impact in business activities and relationships

Capacity Building

Provisions that encourage behaviour by enhancing knowledge

To encourage positive behaviour by enhancing knowledge and oversight

TCLP Net Zero Culture Employment Handbook44

To support the development of skills and capabilities necessary for effective ESG management and compliance

Figure 3: Overview of ESG Clauses

(e) THINK! BEFORE YOU DRAFT. Further notes on clauses

The first question could be: Why is the clause being implemented? What is the goal that should be achieved? Do I require a contract to achieve that goal?

Then, there are suggestions for ESG clauses for contracts, based on best practices and examples. These are typical drafting notes for the ESG context:

Clarity and precision: Clearly define terms related to ESG standards and objectives in contracts to ensure mutual understanding and enforceability.

Specificity and measurability: Ensure that all ESG-related contractual obligations are specific, measurable, and aligned with the latest regulatory and industry standards.

Monitoring and compliance: Establish mechanisms for monitoring compliance and reporting in line with these ESG frameworks to ensure ongoing compliance and transparency.

Incentives and penalties: Where appropriate, include incentives for exceeding compliance targets and penalties for non-compliance, to encourage adherence to ESG goals.

Stakeholder engagement: Include provisions for stakeholder engagement and consultation, particularly in projects influenced by urban agendas or aesthetic initiatives.

Future-proofing: Incorporate flexibility into contracts to allow for updates to reflect ongoing changes in laws and standards based on evolving legislation and standards without renegotiating the entire agreement.

However, ESG clauses should be tailored to the specific context and risks of each contract.45

The IBA ReportIBA Report states that ESG clauses should be clear, consistent, and enforceable, that they should refer to relevant legislation, regulations, and voluntary standards, and that they should include mechanisms for monitoring, reporting, and verification of compliance.46

In practice, checking all of these boxes may not be as straightforward as stated in the IBA report and further advice given in the context of ambitious ESG-contract drafting. The current practice of the European and national regulators does not really allow us to stand still any longer. It’s hard to live with the contradiction between being overzealous and not moving at all. Endeavour / efforts clauses may be a start for implementing ESG considerations. They might not check all of the boxes to meet all of the standards, but they may be all that a party can give for that moment. Efforts clausesEfforts clauses are contractual terms used to define the level of effort a party must make to fulfil its obligations under a contract. These clauses typically specify whether a party must achieve a result (result-oriented) or merely work towards it (effort-oriented). It is important to tailor these clauses to the circumstances of each agreement, as they may vary significantly depending on the jurisdiction and the specific language used in the contract47. Endeavour / efforts clauses and their effectiveness, especially based on the principles governing general terms and conditions / standard business terms have been hotly debated in the German real estate market, especially for green leases.48 The redraft of the German Property Foundation’s Green Lease (2024)49 includes a definition of endeavour / efforts: »‹Efforts’ within the meaning of these provisions means that the Parties do not owe success, but only technically and economically reasonable action [within a reasonable period of time]. Action shall be deemed reasonable if its implementation is associated with a reasonable financial outlay (the Parties generally understand reasonable to be an outlay per measure of up to [*] euros) and a reasonable amount of time (depending on the individual case)«.50

(f) There’s implementation, then there’s implementation

In theory, there is no difference between theory and practice. In practice, there is. There’s the content, the drafting, and the negotiation of the contract; then there’s the drawer (or safe) the contract is nicely tucked away in, never to be seen again. Or: there’s the content, the drafting, and the negotiation start, then »poof«, the ESG clauses are all gone. Or: one party introduces its ESG strategy at the beginning of the process; the other party replies, »Yes, yes, we’re aligned,« then as the process comes to an end, ESG clauses magically appear in the contract, but the party that introduced them in the RFP process has had no say in their content. Or: there’s the content, drafting, negotiation, and in the end, the clauses are so difficult, that no one understands them. Etc. etc. Does any of this sound familiar?

There are quite a few theories about implementation, but it can be boiled down to a few simple questions: (1) Who has the power to negotiate? (2) Have we taken a moment to look at the clauses the other party has given us and compared them to our own? Also: (3) Have we defined the must-haves, should-haves, nice-to-haves in those clauses; have we defined them for ourselves, so that we can process them efficiently? Do we know if we need the clauses for any reason (for example, in order to comply with reporting obligations, or our own investment strategy)? (4) Are the right people engaged in the process? (5) Do we know who those right people are? (6) Do we know how our company operates in terms of implementation of contracts? (7) Do we know how to implement the clauses? (8) Do we know what they mean? (9) Have we calculated the costs of the contract? (10) Do we know that in a lot of cases, ESG clauses are about costs and risks and who bears them? And this is all very time-consuming and costly.5152

There is also some great thought leadership, for example from TCLPTCLP on introducing sustainability / ESG provisions, e.g. to introduce climate (or other sustainability) provisions to contract parties, see for example the TCLP Guides,53 mostly related to climate / emissions, which may be tweaked for other sustainability considerations.

1.1.5 What does ESG in real estate contracts mean? Use cases

So far this has been a very general discussion on sustainability / CSRCSR / ESG, and types of clauses, their consequences and implementation.

What does ESG in real estate contracts mean? Where does all this come into play? Here are some use cases, evolving around commercial real estate, from different perspectives (such as that of a property developer, a tenant, a bank, others), in each of them, the parties to the contracts are companies, not individuals:

(a) Use case 1: Property developer’s commitment (for details regarding contracts in development, see #2.3)

Facts: A property developer is planning a new commercial real estate project and wants to attract environmentally conscious investors and tenants by incorporating ESG principles into the development.

Key ESG Risks or Topics: The developer must consider sustainable land use, the environmental impact of construction, and the creation of a healthy environment for future occupants.

Possible Contract Clauses:

Sustainable Development Requirements: Clauses that commit the developer to using a certain percentage of renewable materials and to follow sustainable building practices.

ESG Reporting: An obligation to provide ESG impact reports at various stages of the development.

Community Engagement: Commitments to engage with the local community and contribute to social welfare.

(b) Use case 2: Retrofitting existing buildings (for details regarding contracts in development, see #2.3, management contracts, see #2.5, regarding leases, see #2.6)

Facts: A real estate investment trust (REIT) is looking to retrofit its existing commercial properties to improve energy efficiency and reduce operating costs.

Key ESG Risks or Topics: The REIT must consider the carbon footprint of its buildings, the potential for energy savings, and the impact of retrofits on tenants.

Possible Contract Clauses:

Energy Efficiency Targets: Clauses that set specific targets for energy efficiency improvements.

Tenant Cooperation: Provisions requiring tenant cooperation with retrofitting efforts and potential disruptions.

Cost Sharing: Agreements on how the costs and savings of energy efficiency improvements will be shared between the landlord and tenants.

(c) Use case 3: Sustainable property acquisition (for details regarding investment, see #2.4)

Facts: A multinational corporation is looking to acquire a portfolio of commercial properties that align with its ESG strategy.

Key ESG Risks or Topics: The corporation needs to assess the environmental certifications, energy performance, and social impact of the properties it intends to acquire.

Possible Contract Clauses:

ESG Due Diligence: Clauses requiring thorough ESG due diligence before acquisition.

Representations and Warranties: ESG-related representations and warranties by the seller.

Post-Acquisition Improvements: Commitments to make necessary ESG improvements post-acquisition.

(d) Use case 4: ESG compliance in property management (for details regarding management contracts, see #2.5)

Facts: A property management company is contracted to manage a portfolio of commercial buildings and is required to maintain high ESG standards.

Key ESG Risks or Topics: The company must address energy management, waste reduction, and tenant engagement in sustainability initiatives.

Possible Contract Clauses:

ESG Policy Adherence: A requirement for the property management company to adhere to a specific ESG policypolicy.

Performance Incentives: Incentives for meeting or exceeding ESG targets.

Tenant Engagement Programmes: Commitments to implement programmes that encourage tenants to participate in sustainability initiatives.

(e) Use case 5: Green financing by a bank (for details regarding financing, see #2.8)

Facts: A commercial bank provides a loan for the construction of a new office building. The bank has a strong commitment to sustainability and wants to ensure that its investments align with its ESG goals.

Key ESG Risks or Topics: Key ESG considerations include the building’s energy efficiency, the use of sustainable materials, and the long-term environmental impact. There is also a focus on the social aspect of ESG, ensuring that the construction process adheres to fair labour practices.

Possible Contract Clauses:

Performance Milestones: