ESG And Property Investment: What Commercial Investors Really Need To Consider

There was a time when environmental and social factors barely registered in commercial property deals. Energy ratings and community value sat somewhere near the bottom of the checklist – if they featured at all. But in today's market, ESG (environmental, social and governance) has moved to the top table. And for serious investors, it's now as much a question of financial prudence as it is of public image.

At its core, ESG is about recognising that buildings don't exist in a vacuum. They have an environmental footprint. They affect the people who live and work around them. And increasingly, they are subject to rules, standards and expectations that demand transparency, foresight, and a different kind of due diligence.

Environmental

The environmental piece is where the legal landscape has moved fastest, and where the commercial risk is perhaps most immediate. Investors now need to look closely at the energy performance of their buildings, not just for compliance with existing rules, but to anticipate where the law and the market are heading.

Minimum Energy Efficiency Standards (MEES) already restrict the letting of commercial properties that fall below an EPC rating of E. But the Government has made no secret of its intention to raise the bar – the direction of travel points to EPC B by 2030, and possibly sooner for some building types. That means investors taking on lower-rated assets today may be staring down significant capital expenditure in the coming years, especially where retrofitting isn't straightforward.

This has implications across the board. Older buildings are starting to carry what's been dubbed a "brown discount" – lower sale prices or rentability concerns due to their energy profile. Green buildings, by contrast, are attracting better tenants, longer leases, and access to cheaper finance. Some lenders are even offering sustainability-linked loans with favourable terms tied to carbon performance.

The legal point? Environmental issues are now wrapped up in the value, financeability and future potential of the asset, and those issues must be part of early-stage legal advice.

Social

While environmental performance is relatively easy to measure, the social impact of a building can be harder to pin down, but it's no less influential in planning decisions and investor mandates.

For developers, local planning authorities are increasingly insistent on social contributions. This might mean affordable workspace, employment schemes, or inclusive design principles baked into the scheme. Legally, these commitments often manifest in Section 106 agreements or are factored into planning conditions that shape how and when a development can proceed.

Institutional investors, particularly pension funds or government-backed bodies, are also starting to demand evidence of social impact. This could include data on local economic uplift, accessibility, or tenant wellbeing. From a property management angle, that's prompting landlords to think differently about how buildings serve their communities and what kind of tenancies they encourage.

Governance

The governance dimension of ESG often goes under the radar, but it's where poor practice can quietly undermine everything else.

Good governance in property investment can mean a range of things – from transparency in fund structures, to effective oversight of managing agents, to sensible risk planning in long-term leases. It also covers how environmental and social targets are monitored and reported.

One practical example is the rise of green lease clauses. These provisions, often mutual between landlord and tenant, encourage sustainable use of the building, such as sharing energy data or agreeing on improvement measures. They've moved from being nice-to-have extras to essential tools, particularly in modern office space.

But green leases need to be carefully negotiated. What seems fair in principle can give rise to disputes around service charge recovery, maintenance obligations or performance benchmarks. Investors need to know exactly what's in their lease documentation, and how it might constrain or enhance the building's ESG profile.

Legal due diligence

Traditional property due diligence has always focused on title, planning, tenancies and physical condition. What's changed is the added layer of ESG-related scrutiny.

Now, lawyers acting for commercial buyers or lenders need to think about:

• Whether there are existing sustainability-linked obligations in leases
• What it would cost in real terms, to bring an asset up to future EPC standards
• Whether any planning conditions relate to social value or carbon reduction
• If ownership structures align with governance best practice
• The extent to which flood risk, overheating, or water scarcity have been assessed

It's no longer enough to say, "the building stands up." The question is whether it will still stand up legally, financially and operationally in five years' time.

What lies ahead?

The ESG landscape isn't static. In fact, the pace of regulatory change has quickened in recent years. Key developments on the horizon include:

• The full embedding of TCFD-aligned climate disclosure rules for large UK corporates and funds
• Further uplift in Building Regulations around energy use, biodiversity and overheating
• Expansion of Biodiversity Net Gain requirements, which apply to most developments post-2024
• Growing scrutiny from lenders and investors on ESG risk in real estate portfolios

What this means in practice is that legal teams advising on acquisitions, lettings, developments or refinancing now need to factor in a far wider range of ESG considerations, many of which are still evolving.

The bottom line

In 2025, ESG isn't a buzzword. It's a risk factor. It's a value driver. And for anyone involved in commercial property, from institutional investors to family offices to local developers, it's a legal issue that needs to be considered at every stage of the investment lifecycle.

At Buckles, we work closely with clients to bring ESG into the heart of property strategy. Whether it's advising on green lease clauses, assessing retrofit liabilities, or supporting planning negotiations with social value dimensions, we help investors stay ahead of the curve, and on the right side of both the law and the market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.