The Growing Importance of ESG Practices for Real Estate Investment
"While COVID-19 has underscored the importance of ESG issues, this shift is a result of trends already underway."
Environmental, Social and Governance (ESG) practices are critical to real estate investment according to a report from The Counselors of Real Estate. The COVID-19 pandemic has elevated this trend as risk management, resiliency, transparency and social engagement are ever-growing important issues.
The report, 2020-21 Top Ten Issues Affecting Real Estate, attributes the rise in ESG practices to a growing influence of millennial investors, innovations in the measurement and tracking of ESG performance, and the wider acceptance of the risks of climate change among other reasons.
“While COVID-19 has underscored the importance of ESG issues, this shift is a result of trends already underway,” said Michel Couillard, 2020 chair of The Counselors of Real Estate. “Perhaps most explicitly, issues of climate change and the associated risks to investors has snapped into focus within the ESG lens. In recent years there has been a shift in American, Australian, EU, and Asian perspective on ESG and climate change, with a World Economic Forum poll finding a majority of Americans feeling climate change should be a top priority for the government, a 14% rise from four years ago.”
Couillard added that “nearly two-thirds of Americans believe in protecting the environment as a policy priority.” The shift in perspective from society has made ESG go from more of a trend to a critical issue that real estate investors should be addressing more often.
ESG looks at multiple key issues in the real estate field such as issues of equity, sustainability, health and wellness and diversity.
Wellness is one of the key areas of focus for ESG practices. According to the report, that is achievable with walkable urban areas, which have attracted more affluent, younger people.
“It is the opinion of the Counselors of Real Estate that ESG has been established as a prudent risk mitigation strategy that will contribute to long-term value creation that real estate has historically enjoyed,” the report concludes.