ESG Research: ESG Solutions - Understanding ESG software demand
REspond - Understanding the Demand for ESG Software in the Real Estate Market
In the fourth article of our series, we explore the diverse perspectives of clients and the experiences of solution providers, while continuing to answer the key question: How is the current ESG software market structured? This article sheds light on how client maturity impacts the demand for ESG solutions, providing valuable insights for both real estate companies and software providers in the evolving market.
Understanding the demand for ESG Functionalities
Real estate companies seek software solutions to address their specific pain points, whether meeting reporting requirements, organizing data, or gaining a clear overview of key performance indicators such as energy usage or space occupancy. For each of these challenges, a range of solutions is available, from established platforms to ESG-specific tools designed to provide the necessary support.
Unlike the well-defined separation of established software solutions across organisational levels in real estate, ESG-specific solutions often transcend these distinct boundaries. The latter typically focuses on a particular ESG process or end result, which can span multiple levels of a real estate organisation. For instance, an energy management system might be used by property managers, occupiers, as well as asset and fund managers, depending on the specific functionalities it offers to support these various stakeholders.
As one interviewee noted about their software’s diverse user base: "On one side it's the Real Estate developer. Because they want to deliver a building and make sure that the building is indeed performing as they have sold to the client... The portfolio owners are the second ones really looking towards 'How green is my portfolio? How can I still invest?' Will they be stranded or not?"
The ESG-specific solutions can cater to different levels of the real estate organisational pyramid, and some can offer a more bespoke solution. While none of the established solutions we interviewed provide such tailored options, more than half of the interviewed ESG-specific solutions include ESG consultancy services or partnering with additional providers that assist in implementing the client’s ESG strategy. As one interviewee commented about the tailored solution they offer: "So for these customers, you would need to work a bit more with them or have more of a bespoke solution to work with them. It would take more than just an authorization. It takes a site visit and a detailed assessment, and then an installation rollout."
A bespoke solution can be particularly valuable for clients with lower maturity levels in their ESG journey. Typically, a client approaches a software company once they have an ESG strategy in place and have identified pain points that can be solved using software. However, some parties do not have a high level of maturity regarding their ESG strategy, and being assisted by solutions that have specific services tailored to their needs can be helpful. As one interviewee commented on the different maturity levels when it comes to real estate parties: "Because there's the other problem, this being like a new domain, it's not like asset managers know how to do ESG. They know the regulations. They do not have processes; they do not have the data. So, everything is very wild, wild West."
Understanding the Geographic Demand for ESG Functionalities
Geographic factors play a role in shaping the demand for ESG software. Real estate parties in different regions require solutions tailored to their unique geographic and regulatory landscapes. These tools help address challenges like meeting region-specific reporting requirements, organizing local data, and gaining insights into key performance indicators such as energy consumption or space occupancy. One interviewee highlighted the importance of adapting to country-specific differences when organizing data: "When we look for a certain type of data in the leases, it may appear slightly different abroad… The difference between two countries is that we cannot interpret the same data in the same way ... There is also some language barrier ..." This underscores the need for software solutions to account for variations in data handling and language across regions.
Country-specific challenges arise not only during data organisation but also throughout data collection. For instance, around 16% of interviewees noted that Germany has complex energy meter data collection procedures, as remote reading processes are often non-existent. Another issue that arises regarding country-specificities is the timeframe of when data is collected: “So, if it is utility bills or physical meters, can we get the data from the utility provider the next day, half-hourly information?”
When it comes to data standards and country-specificities, different solutions are working to solve this issue in various ways. Two of the twelve companies we interviewed stated that they offer solutions to organise ESG data in a way that ensures comparability across assets in different countries, taking climate variations into account. All international ESG-specific reporting solutions we have spoken to stated they develop new reporting capabilities to address variations in ESG reporting legislation. Additionally, one of the companies also invests in transforming their data to fit OSCRE standards (Open Standards Consortium of Real Estate). Nonetheless, these country-specific differences are generally less obstructive for ESG solutions aiming to operate across multiple countries compared to the complexities faced by property management software, which can make international activity more difficult for the latter.
The bespoke nature of some ESG tools, coupled with the complexities introduced by varying client maturity and geographical differences, underscores the evolving nature of this market. While country-specific data handling and reporting standards pose challenges, they are generally less obstructive for solutions aiming for international reach compared to the complexities of property management systems. Overall, understanding these dynamics is crucial for both real estate stakeholders and software providers navigating the intricate landscape of ESG solutions.
Disclaimer: Please be aware that the information in this article is based on verbal communication with suppliers and has not been independently verified.