Regulatory Changes Coming to Real Estate – Technology Can Help

Wed 26 Oct 2022

Proposed SEC regulations governing the disclosure of Environmental, Social, and Governance (ESG) risks have many companies scrambling to understand how to comply with new reporting requirements effectively. And the impact will likely trickle down to the broader real estate industry.

The proposed disclosure requirements treat climate risk as material information for public companies, which will expand the risks that public companies will be required to disclose, such as direct emissions, indirect emissions from purchased energy, and emissions from upstream and downstream activities in the company’s value chain. Lawyers studying the regulation say that the SEC rules could even set standards for non-public companies if lenders start to expect the same disclosures as a condition for financing.

Proptech and ESG

The new requirements would bring the US closer to ESG demands in other parts of the world, particularly Europe’s environmental disclosure rules. To that extent, some legal advisors and asset managers have already been dealing with similar requirements in other markets.

The new regulations could significantly impact the real estate industry, especially publicly traded real estate investment trusts (REITs) and private real estate funds.

That impact, in turn, is likely to boost the proptech industry—and in particular—the new wave of companies providing technology that helps property owners manage the financial and operational aspects of their holdings. One result of the new regulations is that the nature of environmental risks to be disclosed and the metrics used to describe them will become standardized. Technologies that can provide scalable, compliance-grade accounting of environmental risks will be at a premium.

All parties in the real estate ecosystem will be turning to proptech and will be affected by this. In addition to the property owners, lawyers engaged with proptech companies, real estate investment companies, and landlords will all be leaning on new technologies that assist with audits and compliance.

What Do the Proposed SEC Regulations Mean for Your Clients?

Even at the individual property lease level, ESG factors are taking on increased importance as investors and others look to identify “green properties” and “green leases.” Lease terms can govern property features such as building certifications (such as LEED or Energy Star), requirements to use renewable energy on-premises, requirements or cost-sharing terms around energy-savings in improvements or equipment and appliances, and irrigation and other aspects of outdoor spaces. Lease terms may also relate to the well-being of employees and occupants, such as by regulating transportation features, air quality, and toxic cleaning products.

Lawyers advising property owners or real estate investors should be aware of the coming impact of this new focus on environmental factors and equip themselves and their clients with the right technology to enable compliance. That includes proptech platforms that track audits and data relevant to compliance, but it also includes software for analyzing leases for ESG-related terms that might increasingly become the subject of ESG audits or negotiations with tenants.

What Do Legal Industry Leaders Say About Proptech and the Regulatory Changes?

To help answer that question, join our team and experts from the legal industry on November 9th, 2022, at 1 PM EST for a free webinar, Spotlight on Proptech: Regulatory Change and its Impact on Businesses. We will share the results of our latest report on venture capital activity in the real estate technology sector and discuss how technologies like proptech, can help mitigate risk.

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