ESG is a topic that is widely and rightfully spoken of. It can be a make-or-break factor in any deal-making process. Many companies are currently navigating what it means to be ESG compliant and considering how they can implement ESG criteria into their business.
As real estate is currently one of the largest asset classes, it is important to consider how ESG plays a role and can be implemented in deal sourcing.
The best way to understand ESG is to think of compliance and better living conditions for all.
A few examples of ESG include the following:
E – Recycling, prevention of land contamination, pollution Prevention, waste management, water consumption and the level of carbon emissions.
S – Health and safety, customer satisfaction, human rights, gender equality, data privacy.
G – Crime prevention, compliance, bribery and corruption prevention.
How can ESG be utilized to succeed in a competitive real estate sector?
· Promote houses already using the ESG criteria. There are a lot of benefits when you use energy efficient appliances as you’ll not only save money and reduce your monthly energy bills, but you can also help conserve and protect the environment.
· Promote the Installation of energy efficient equipment. Electricity generated on-site (through solar panels or other means) can be sold to tenants or local communities.
· Parents want to raise their children in a healthy environment. Investors search for properties in areas where ESG is utilized. Growing households increase air pollution and other harmful chemicals. Not only does the use of energy efficient appliances help eliminate a toxic environment, it also helps fight climate change.
· Areas supporting the ESG criteria like healthcare and education will appeal to buyers, making the area “sought after” by investors, increasing the value of the property.
· The environmental aspect of ESG in real estate investigates the property’s vulnerability and resilience to severe weather. (Examples hurricanes, flooding, extreme heat or cold, wildfires, tornadoes, blizzards)
· Another environmental aspect of ESG is the management and control of energy used, prevention of water contamination, the removal of generated household waste and implementation of recycling initiatives.
· Evaluating properties’ environmental impact and assuring that proper protocols are put in place.
· The social aspect of ESG would be addressing the community needs. Investors and buyers would be drawn to these areas, as buyers, especially parents and retired people, would look for safe areas which supply amenities within the community, such as good schools, health care, and shopping centers.
· The Governance aspect of ESG would appeal to investors and buyers as the environmental and sustainability metrics of the ESG areas are tracked.
· New emerging property technology (“proptech”) and proptech companies are designed to help streamline the gathering of data and aid in auditing and reporting for real estate.
ESG is shaping and influencing real estate valuation, gaining a variety of tools to determine future opportunities. ESG criteria can impact an investor’s decision. Investors now have more insight and can assess the risk versus the rewards, as well as potential growth areas. ESG initiatives, add value to the investment because it attracts tenants, reduces operating costs, and increases capital demand.
The implementation of ESG into your real estate deals will provide a better outcome for the future of our planet while simultaneously generating greater returns.