ESG considerations for real estate investors and how this will affect the real estate industry and how this all fits into the Environmental, social, and governance factors in real estate. Do we really understand the impact that ESG will have on our real estate investments, owning property in other jurisdictions and what impact this will have on our tenants!
Introduction: What does ESG stand for? It stands for: Environmental, Social, and Governance (ESG) investing has become increasingly popular in recent years. ESG investing is a way for investors to consider the impact of their investments on the environment, society, and corporate governance.
In today’s show, (this YouTube video), we will discuss how ESG will affect real estate investors and landlords. We will explore the benefits of ESG investing in real estate, the current trends in ESG investing, and how landlords can incorporate ESG into their properties.
This is the belief: Benefits of ESG Investing in Real Estate Landlords who prioritize ESG at their properties can expect higher rent, tax credits and incentives, and overall higher market value of their real estate investments.
This is the reality: The cost to change over your real estate property will prove to be very costly, and it may not be translated into getting more rent, no matter what is being sold to us as a bill of goods. Our tenants, for the most part, are trying to find the least expensive rental, never mind this new ESG protocol!! LOL I think we have to fix the economic problem, before we change over our properties into ESG compliant properties. This may be easier said than done for small landlords.
THIS IS WHAT IS BEING SOLD TO REAL ESTATE INVESTORS!!
While the initial outlay of capital may seem burdensome to many real estate owners and investors, ignoring tenant needs and demands can inadvertently inhibit anticipated value growth. In addition to understanding tenant expectations, there are numerous benefits offered to companies willing to take the plunge into the ESG realm from a real estate perspective, including (but not limited to) tax credits, incentives, and favorable financing1. From both a social and financial perspective, ESG investing in real estate is a win-win situation.
Current Trends in ESG Investing 2020 was a watershed year for Environmental, Social and Governance (ESG) investing in real estate as pandemic- and climate-related disruption, along with growing recognition of social inequity, prompted investors to adopt a more robust approach to sustainability-related risks
With ESG now playing a much more prominent role in how companies operate, investors are embedding ESG considerations into every stage of the property lifecycle, from due diligence to acquisitions and from leasing to asset management. Recent legislation with ESG-related real estate impacts includes the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which requires financial market participants to disclose how they integrate sustainability risks into their investment decision-making processes
How Landlords Can Incorporate ESG into Their Properties
The responsible investment agenda has led to a shift in approach from real estate investors, developers, and landlords, for whom sustainable developments and operations are becoming increasingly important. Landlords can incorporate ESG into their properties by implementing energy-efficient systems such as solar panels or LED lighting.
They can also use sustainable materials for construction or renovation projects. Additionally, landlords can promote social equity by providing affordable housing or partnering with local organizations that support community development.
By incorporating ESG into their properties, landlords can attract tenants who prioritize sustainability and social responsibility. I’m sure that there are tenants who will prioritize rentals being ESG compliant, but can they afford the extra rent it will cost them?
ESG investing is becoming increasingly important in the real estate industry. Landlords who prioritize ESG at their properties can expect higher rent, tax credits and incentives, and overall higher market value of their real estate investments.
Current trends in ESG investing include embedding ESG considerations into every stage of the property lifecycle and complying with recent legislation such as the European Union’s Sustainable Finance Disclosure Regulation (SFDR). Landlords can incorporate ESG into their properties by implementing energy-efficient systems, using sustainable materials for construction or renovation projects, and promoting social equity. By incorporating ESG into their properties, landlords can attract tenants who prioritize sustainability and social responsibility.
Let’s Name the Pro’s and Con’s of ESG for Real Estate Investors, landlords and tenants
Pros of ESG for Real Estate Investors, Landlords, and Tenants:
- Improved sustainability and environmental impact
- Increased tenant satisfaction and retention
- Enhanced reputation and brand image
- Reduced operating costs through energy efficiency measures
- Access to a wider pool of investors who prioritize ESG factors
- Improved risk management through better understanding of ESG risks
- Compliance with regulatory requirements and industry standards
- Increased property value through ESG certifications and ratings
- Attraction of socially responsible tenants and investors
- Improved health and well-being of occupants through healthier building materials and indoor air quality measures
- Reduced liability risks through better management of environmental hazards
- Increased resilience to climate change impacts
- Improved community relations through social responsibility initiatives
- Access to green financing options with favorable terms
- Improved employee satisfaction and productivity through sustainable workplace practices
Cons of ESG for Real Estate Investors, Landlords, and Tenants:
- Higher upfront costs for ESG investments and certifications
- Potential trade-offs between ESG goals and financial returns
- Limited availability of ESG data and metrics for real estate assets
- Difficulty in measuring the impact of ESG investments on financial performance
- Potential for greenwashing or misrepresentation of ESG efforts by companies
- Complexity of ESG regulations and standards, leading to compliance challenges
- Limited availability of skilled professionals with expertise in ESG for real estate
- Potential for conflicts between ESG goals and tenant preferences or needs
- Difficulty in retrofitting existing buildings to meet ESG standards
- Limited availability of green building materials and technologies in some markets
We have examined both the pros and cons of ESG as it relates to the Real Estate investor, Landlord and Tenant. Now it’s up to you as a business owner to either embrace this new protocol or go against it. The buck is now in your back pocket!!~