The flow of capital into environmental, social and governance (ESG) assets, combined with the pressure to pursue change makes for a confusing landscape for businesses. This is especially for smaller firms without the resources and capacity to either dedicate internal staff time or hire an external expert to address ESG factors.
There is no less desire to do the right thing in the SME and mid-market, but there is a question around how.
“There’s a lot of chatter and posts on LinkedIn, but how can businesses jump on the fast train that is ESG?” asked Debra Cooper, partner at Shoosmiths, at a recent seminar the firm held on levelling up the ESG agenda across real estate.
“It’s the alphabet soup of acronyms,” said Glenn Bemment, head of ESG for SME & mid corporate banking at Lloyds Bank. “Smaller businesses have enough to deal with, including inflation, resource shortages and skills gaps. However, ESG isn’t going away. That’s why demystifying it and taking the jargon out is important. We all need to get on the journey.”
The real estate industry can be seen as one of the pioneers of ESG, at least when it comes to the E – environment.
“We were doing ESG before ESG was a ‘thing’,” said Bev Taylor, director of energy & environment at commercial property specialist Bruntwood.. “Our business is around 40 years old and was born out of recycling and improving buildings. That’s always been our ethos. We’ve changed tack along the way. We now develop buildings as well as refurbish them, but our principles – rooted in place and creating thriving cities – have remained the same.
“We know that, as a business, we cannot succeed unless our cities and people are successful as well. While we’re all at different points on the ESG journey, there are fundamental principles. That’s why purpose is so important.”
The idea of ‘purpose’ can be seen as a golden thread when it comes to ESG.
“As a business, we cannot succeed unless our cities and people are successful as well.
Sustainability-linked loans
The use of sustainability-linked loans is growing rapidly in the real estate finance market. According to data compiled by Bloomberg, over 40% of revolving credit facilities approved in Europe during 2021 were tied to borrowers’ environmental, social, and governance goals.
Lloyds Bank recently made its largest sustainability-linked loan in the social housing sector – providing Platform Housing Group with £235m to build more homes and decarbonise its stock.
The housing association will be measured by three KPIs to secure margin discounts on the funding. These are to improve the energy efficiency of its existing portfolio, increase the energy efficiency of its new build properties and invest in its communities by increasing the proportion of those undertaking apprenticeships each year. The last KPI shows the increased focus on the S of the ESG.
“Lloyds Bank is helping provide access to quality, sustainable and inclusive homes in the right places,” said Bemment.
“We’ve got a role to play in providing access to finance for homes. There are also less well-developed areas that need mix of use – whether that be residential, commercial, entrepreneurial or big business.”
The volume of sustainability-linked loans in the UK real estate sector is one indicator of the progress being made on the environment. Shoosmiths is contributing to this after advising Lloyds, as part of a syndicate comprising NatWest, HSBC UK and Santander, on one of the largest regional sustainability-linked loans in 2021, to Bruntwood SciTech.
Advancements in this area were reaffirmed by Cooper: “The E is slowly becoming business as usual, or at least the acknowledgment that it needs to be.
This is resulting in a shift in the real estate market, as outlined by Nick Taylor, director at Savills, who said: “We’re now seeing people applying a significant capital expenditure when evaluating and valuing a ‘brown’ asset.”
More than E
The E is only one aspect of ESG, though. To be successful, the real estate industry and the wider business community need to prioritise addressing social and corporate governance.
“We’re a not-for-profit social enterprise aimed at getting a more diverse range of young people into careers within the property and construction industry,” said Judi Greenwood, head of Regeneration Brainery.
“Currently, young people are looking at the Manchester skyline and thinking that there isn’t a future for them in their own city. Regeneration and levelling up is about ensuring these young people feel like they can be part of the change and investment that’s happening.”
Greenwood’s comments highlight the human impact of ESG. They also reveal why it is critical that businesses understand the importance of integrating social and corporate governance into their ESG strategies.
“Larger organisations, like Shoosmiths and Lloyds Bank, have a key part to play in bringing different sized businesses together and providing education,” said Bemment. “We’ve learnt very quickly about the power of putting people in the same room.”
Bev Taylor echoed this, pointing to the action landlords can also take: “As a building owner we recognise the importance of collaboration. We’ve got to try and help people on this journey, as often businesses may not know where to start.”
“Companies can often be scattering around to deal with the social element of ESG,” added Greenwood. “However, collaboratively, we can take huge leaps in helping the communities we’re working in harnessing the power of partnerships to achieve ESG targets.”
Commercial sense
It is becoming increasingly clear that doing good does not have to come at the cost of doing good business.
“There’s lots of upside to ESG,” said Bemment. “Businesses might think it’s another thing to do, that its costly and they don’t have the time. All of that can be true. But there are opportunities, including reducing energy costs, attracting talent, or winning new clients.”
One important factor in businesses recognising the benefits of ESG is measurement. This is also critical to avoiding the concept of ‘greenwashing’ and enabling businesses to chart their ESG journey internally and externally – demonstrating the impact of their efforts.
“Data and measurement are integral to documenting and validating ESG,” added Bemment. “This allows future management teams, regulators or auditors to revisit things like sustainability-linked loans and ensure that KPIs are being hit. It comes back to good governance – an area that can often get overlooked when it comes to ESG.”
Talking on Bruntwood’s experience, Taylor said: “It’s a case of ‘so what’ – what is the wider impact and how does this translate into our communities?
“Pre-loan, sustainability was often approached as the responsibility of people that might sit ‘over there’. We now find that it engages different parts of the business. All of a sudden, finance want to talk to us to check if we hit the KPIs as it would chip off the loan.
“There’s always a question of what we should put in the KPIs. It brings people together from across the business to discuss our wider purpose and what drivers we need to improve.”
Embedding ESG
Over the past five years Bruntwood has secured several sustainability-linked loans. While the progress made towards hitting its ESG targets has been critical to its success, Taylor’s comments show that it is only possible when an entire business gets onboard.
This was a uniting factor in the roundtable discussion, with Nick Taylor commenting: “At Savills, I sit within an expanding green group. There’s a lot of knowledge there. But, ultimately, the ideal scenariois that there aren’t these groups, and information is spread across the division and company so that ESG becomes ingrained.”
The way the UK real estate industry is evolving means that ESG is now unavoidable, with new legislation and policies requiring businesses to act.
There’s also the investor pressure, with Bemment explaining: “If in five to 10 years’ time people are still sticking their head in the sand and not engaging, you will see some of those brown and green premiums when it comes to finance.
“That might be through incentives, or more aggressive pricing. If you’re not willing to come on the journey, it could be more difficult or more expensive to get finance.”
The government, legal providers and other larger organisations must ensure the education, funds and resources are made available to help other businesses on their ESG path.
This must be matched by businesses setting and meeting their own targets. Bruntwood’s Taylor concluded: “It’s one thing saying it, and another thing actually achieving it.”
Contributors
Glenn Bemment, Head of ESG for SME & Mid Corporate Banking – Lloyds Bank
Debra Cooper, Partner – Shoosmiths
Judi Greenwood, Head – Regeneration Brainery
Bev Taylor, Director of Energy & Environment – Bruntwood
Nick Taylor, Director – Savills
Disclaimer
This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2025.