BOV CEO Kenneth Farrugia says sustainability in real estate is not ‘a can to be kicked down the road’

Kenneth Farrugia, CEO of Bank of Valletta, believes that more stakeholders need to be addressed and kept in mind in businesses’ considerations when looking at the potential for green property investment.

Speaking at a conference organised by the bank on Tuesday, titled Climate Challenges and Opportunities for Real Estate: Time for Action, Mr Farrugia noted that the focus on ESG (environment, social and governance considerations), so far, has been a narrow one.

“We are looking at ESG and the benefits the approach delivers by looking at the value of property.”

However, he said, “it goes beyond that.”

“Our vision is to build a better competitive proposition, and that depends on retaining and refining Malta’s attractiveness to tourists, to foreign direct investment. It depends on our appetite to embrace ESG considerations and the value they will deliver.”

“We cannot kick the can down the road,” he said. “If we look abroad, there’s a lot of ground that we need to cover.”

“I think we’ve come a long way in a short period of time, but this momentum needs to gain greater traction. We need to mobilise more actors in this ESG drive.”

Mr Farrugia outlined his view that more consideration needs to be given to a number of actors that are often left out of the conversation about transformation.

Some tenants, for example, are increasingly seeking energy-efficient buildings – a point echoing that made by EY Malta Senior Manager of Economic Advisory Chris Meilak during the panel discussion held earlier that morning.

“Developers need to realise there are tenants willing to pay premium,” he said.

Investors are also giving ever more importance to an investment’s green credentials, noting that during BOV’s own drive to raise capital on international markets in 2022, ESG was “invariably” high on investors’ agendas.

“They really quizzed us on our ESG roadmap and the initiatives we are rolling out to improve in this regards,” said the CEO. “So for organisations looking at capital markets, this will be an important criteria.”

Similarly, investors – institutional and retail – are hungry for green bonds that could finance part of this transition, and banks will also look kindly on projects that place sustainability front and centre, according to Mr Farrugia.

Admitting that this would not necessarily be well-received by developers and contractors, he reminded construction stakeholders present that banks are also subject to pressure from their own regulators, which are pushing them to discriminate between those embracing ESG initiatives and principles and those who do not.

The stiffening regulatory environment means that company directors are also being pressed to integrate ESG into their practice, and ensure a parallel drive is imbued within the organisation.

Touching on the staffing issues firms across the whole economy have faced over the last couple of years, Mr Farrugia pointed out that the younger generation is placing ever greater importance on sustainability and purpose-driven work.

“They want to work for an employer that embraces those principles,” he said. For this to work, a framework and mindset of “ownership” is required.

“The political direction, regulation and polices are very clear. What is left is implementation, which is, of course, the hard part.”

The BOV CEO said he is “sometimes surprised – or rather, dismayed” that Maltese economic players do not work together to leverage their collective assets and connections.

In view of this, he exhorted those present to share good practice between themselves and adopt a collaborative approach, noting that the medium term gains are significant, but difficult to achieve if all players take a piecemeal approach.