ESG Metrics Are Part of the Acquisition Process

ESG has become ingrained in the institutional investment process. During a conversation on institutional investment trends at the GlobeSt.com Multifamily conference earlier this year, Cameron Jones, managing director of US Housing Strategic Transactions at Nuveen, and Angela M. Kralovec,  VP of reinvestment and redevelopment at Essex Property Trust, both said that they consult ESG teams as part of the standard vetting process on potential acquisitions.

Jones says that Nuveen’s in-house ESG team is part of the investment process, flagging big picture environmental and social items. In 2020, the firm released a responsible investing survey, noting that environmental performance is taking a front seat, but amid social unrest, the firm is also looking at ways to make a difference through its investment.

Now, the firm is in the process of raising capital for a social impact fund, which will include investment in the full spectrum of affordable housing, including LIHTC and naturally occurring affordable housing product. Jones said that the platform is not only focused on the real estate investment and return, but it is also providing essential tenant services that will make a difference.

The returns to matter, according to Jones, who said that these are definitely investments in addition to providing social good. In the survey released earlier this year, 85% of investors agreed they would only invest responsibly if the returns are matching or better, and 53% of investors said that better performance has incentivized them to choose responsible investments, moving past the misconception that investing responsibly means sacrificing returns.

Essex also has an established ESG platform, and the firm is looking to reset it targets and amplify the presence of the platform. Kralovec said that five years ago, the firm was simply checking ESG boxes. “The reality is that we can do more,” she said, adding that ESG-focused investments actually provide a solid return, especially for a long-term investor. The firm is going to look for deeper opportunities to strengthen the ESG presence in the portfolio.

Essex and Nuveen aren’t alone. The focus on ESG intensified during the pandemic. A host of private equity companies also increased commitment to ESG in the last year. Private equity companies are four of the world’s 10 largest employers, and they are in a position to drive growth, both in the economy and in society. More of these companies are taking responsible investing and social impact investing seriously. There are currently 700 private equity funds that are signatories to the Principles of Responsible Investing, a UK-based organization that promoted ESG factors in investment decisions.