OPINION: Here’s what proactive ESG investing in real estate looks like
Aug 26, 2022, 12:41 IST
As the need for real environmental, social, and governance (ESG) investing skyrockets, so too should our concern over the state of society and the planet if we fail to meet the United Nations Sustainable Development Goals (SDGs) by 2030 and achieve Net Zero carbon emissions by 2050.
For example, global green finance has risen over 100-fold in the last decade, according to Reuters. Global borrowing by issuing green bonds and loans, and equity funding through initial public offerings targeting green projects, swelled to $540.6 billion in 2021, up from $5.2 billion in 2012. This tidal wave is contributing largely to ESG investing emission reduction practices by incentivising real estate managers to make tangible changes. In doing so, they can leverage subsidies by federal and state tax rebates and by local utility companies.
In addition, the intersection between ESG and impact investing provides ample opportunities for investors to proactively generate value and social impact in real estate, alongside long-term profitability. Esusu Financial, one of the first Black-owned startups to reach a $1 billion valuation with a successful $130 million Series B round, is an excellent example. With early-stage investments from impact investing pioneer Acumen, Esusu (now backed by SoftBank) is a fintech company that targets immigrant and minority groups. It provides rent reporting and data solutions for credit building, helping underserved families get credit for paying their rent on time and building their credit scores.
That is why the question today is no longer if investment managers should consider ESG but rather how they should start integrating it into their business and strategy. After several years on the periphery of investment managers’ attention, it’s finally becoming standard practice—and the data reflects this. At their current growth rate, ESG-mandated assets are on track to represent half of all professionally managed assets by 2024, according to Deloitte. This means a quadruple growth from $19 trillion in 2014 to $80 trillion by 2024.
Much of this growth in global ESG-mandated assets is undoubtedly the result of rising client demand and disclosure regulations. The Sustainable Finance Disclosure Regulation and the Taskforce for Climate-Related Financial Disclosure (TCFD) are two of the biggest regulatory disclosure standards we've witnessed lately. While these recommendations were originally voluntary, in many countries they’re now becoming mandatory, placing increased importance on — and a stricter framework around — ESG and climate-related reporting.
As a testament to this, the Global ESG Benchmark for Real Assets (GRESB) — widely considered to be the leading international assessment and benchmarking tool for the sustainability performance of real estate assets — is developing a TCFD reporting tool to help companies simplify their TCFD disclosure efforts using data from GRESB Assessments. On top of that, the International Sustainability Standards Board (ISSB) has been launched by the International Financial Reporting Standards Foundation to develop a comprehensive global baseline of sustainability disclosure standards.
There’s no question that the train is already barreling forward—and investment managers would do well to jump aboard sooner rather than later.
Indeed, a number of real estate investment managers are already changing the game — largely due to client and investor demand and expectations, regulatory requirements, and the SDGs. Whether investing in new assets, retrofitting existing assets to make them value-additive, or investing during the construction and development phase, managers are increasingly focused on assets that have green building certifications like LEED and product certifications like Energy Star, BREEAM, Green Globes, WELL, or Fitwel that contribute to healthier buildings and improved wellbeing for the people residing and working in them. Additionally, an increase in diversity in leadership among managers, including women, will continue to advance progress and help these managers identify untapped, uncrowded opportunities at the intersection of impact investing and ESG.
For example, Shubham is a leading provider of housing finance in India that recently raised $112 million in a round led by Premji Invest, British International Investments, LeapFrog Investments, and the Asian Development Bank. With this, Shubham aims to expand access to affordable housing among low-income households as well as increase inhabitants’ access to clean drinking water and safe sanitation. This investment in Shubham represents a larger trend in emerging markets, where green buildings represent an investment opportunity of more than $24.7 trillion by 2030, according to an International Finance Corporation (IFC) report.
As we enter a new era where global pandemics, climate change, the global water crisis, systemic racism, and gender and income inequality continue to hinder our progress and the sustainability of our planet — we have an urgent responsibility to rebuild our systems and walk the talk. Proactive ESG techniques in real estate represent engagement on all these fronts — as opposed to simply divesting and screening out negative investments. And engagement brings us closer to impact investing, which is undeniably what will create systemic change in the real estate space.
Thus, companies are finding themselves at a juncture: Take a mechanical compliance approach to ESG, or view this as an opportunity to adjust to the changing socio-environmental conditions and create a new normal for business. This new normal can create real, tangible value for people and the planet, alongside long-term profitability.
Katie Orr is COO & Head of ESG at Lebec Consulting. Alix Lebec is the Founder & CEO of Lebec Consulting.
This column is part of a year-long (2022-23) campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.
Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.
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Focus on real estate is vital in these efforts, as the building and construction industry accounts for roughly 40% of global carbon emissions. It also happens to be a sector with several tangible actions that can bring these emissions down to net-zero while further mitigating climate change by ensuring long-term energy and water usage efficiency and minimising waste production. And, in a global economy dependent on the sustainability and availability of natural and human capital, doing good is not just an ethical choice - it’s the smart choice for investors.For example, global green finance has risen over 100-fold in the last decade, according to Reuters. Global borrowing by issuing green bonds and loans, and equity funding through initial public offerings targeting green projects, swelled to $540.6 billion in 2021, up from $5.2 billion in 2012. This tidal wave is contributing largely to ESG investing emission reduction practices by incentivising real estate managers to make tangible changes. In doing so, they can leverage subsidies by federal and state tax rebates and by local utility companies.
In addition, the intersection between ESG and impact investing provides ample opportunities for investors to proactively generate value and social impact in real estate, alongside long-term profitability. Esusu Financial, one of the first Black-owned startups to reach a $1 billion valuation with a successful $130 million Series B round, is an excellent example. With early-stage investments from impact investing pioneer Acumen, Esusu (now backed by SoftBank) is a fintech company that targets immigrant and minority groups. It provides rent reporting and data solutions for credit building, helping underserved families get credit for paying their rent on time and building their credit scores.
That is why the question today is no longer if investment managers should consider ESG but rather how they should start integrating it into their business and strategy. After several years on the periphery of investment managers’ attention, it’s finally becoming standard practice—and the data reflects this. At their current growth rate, ESG-mandated assets are on track to represent half of all professionally managed assets by 2024, according to Deloitte. This means a quadruple growth from $19 trillion in 2014 to $80 trillion by 2024.
Much of this growth in global ESG-mandated assets is undoubtedly the result of rising client demand and disclosure regulations. The Sustainable Finance Disclosure Regulation and the Taskforce for Climate-Related Financial Disclosure (TCFD) are two of the biggest regulatory disclosure standards we've witnessed lately. While these recommendations were originally voluntary, in many countries they’re now becoming mandatory, placing increased importance on — and a stricter framework around — ESG and climate-related reporting.
As a testament to this, the Global ESG Benchmark for Real Assets (GRESB) — widely considered to be the leading international assessment and benchmarking tool for the sustainability performance of real estate assets — is developing a TCFD reporting tool to help companies simplify their TCFD disclosure efforts using data from GRESB Assessments. On top of that, the International Sustainability Standards Board (ISSB) has been launched by the International Financial Reporting Standards Foundation to develop a comprehensive global baseline of sustainability disclosure standards.
There’s no question that the train is already barreling forward—and investment managers would do well to jump aboard sooner rather than later.
Indeed, a number of real estate investment managers are already changing the game — largely due to client and investor demand and expectations, regulatory requirements, and the SDGs. Whether investing in new assets, retrofitting existing assets to make them value-additive, or investing during the construction and development phase, managers are increasingly focused on assets that have green building certifications like LEED and product certifications like Energy Star, BREEAM, Green Globes, WELL, or Fitwel that contribute to healthier buildings and improved wellbeing for the people residing and working in them. Additionally, an increase in diversity in leadership among managers, including women, will continue to advance progress and help these managers identify untapped, uncrowded opportunities at the intersection of impact investing and ESG.
For example, Shubham is a leading provider of housing finance in India that recently raised $112 million in a round led by Premji Invest, British International Investments, LeapFrog Investments, and the Asian Development Bank. With this, Shubham aims to expand access to affordable housing among low-income households as well as increase inhabitants’ access to clean drinking water and safe sanitation. This investment in Shubham represents a larger trend in emerging markets, where green buildings represent an investment opportunity of more than $24.7 trillion by 2030, according to an International Finance Corporation (IFC) report.
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Thus, companies are finding themselves at a juncture: Take a mechanical compliance approach to ESG, or view this as an opportunity to adjust to the changing socio-environmental conditions and create a new normal for business. This new normal can create real, tangible value for people and the planet, alongside long-term profitability.
Katie Orr is COO & Head of ESG at Lebec Consulting. Alix Lebec is the Founder & CEO of Lebec Consulting.
This column is part of a year-long (2022-23) campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.
Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.
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