If we take a minute to think about some of the most prominent news stories of recent years, how surprised would you be if you were told that they can all be linked to environmental, social or governance (ESG) factors in some way? In the UK we have been bombarded with stories of Brexit, on what seems like a daily basis, since David Cameron promised an EU referendum in February 2016. The EU referendum was called following increasing pressure from groups including the UK Independence Party (UKIP), who built a campaign fuelled by fears over immigration. Now consider how this may be linked to ESG. Climate change (environmental) is having an increasing influence in driving migration(social), and so we can begin to
Benefits of ESG
However, even when faced with the positives that the inclusion of ESG aspects into business strategy can bring – such as improved social cohesion, climate change mitigation, improved public health and well-being, and increased investment potential – we are also faced with challenges around, for example, the efficacy and financial impact of implementing such measures. Those organizations that integrate ESG into their core business strategy may be able to capitalize on better investment opportunities. More and more investors have now shifted from considering whether or not to adopt ESG principles, to a more practical approach of how best to implement ESG strategies, as a part of due diligence. By doing so, investors can enhance the long-term performance and sustainability of their investments. New research is working to debunk the myth that implementing ESG into business strategy brings limited results or costs too much. Research into 50 of the largest Dutch investment schemes found no correlation between the level of asset management costs and sustainability rating – highlighting that schemes with high ESG scores did not incur greater costs than their peers with low ESG ratings. Furthermore, by implementing measures to improve environmental performance – such as developing zero carbon buildings – there is an opportunity to not only eliminate GHG emissions but also reduce operating costs and achieve positive returns.
Investors are increasingly turning to ESG reporting metrics – such as GRESB – for input into how to find the best investment opportunity with ESG credentials. Decision-makers are most likely to engage with ESG if they can see how aspects impact them and how taking action will lead to tangible benefits, and this is largely influenced by the availability of good quality, transparent data. About 67% of institutional investors say that greater transparency in ESG reporting from companies would be the most useful tool for driving ESG integration. By first measuring ESG performance – be that energy consumption or waste generation, asset health and safety risk or an analysis of asset flood risk – this can help to open a dialogue with those in a position to allocate resources, that will allow the implementation of ESG into business strategy. Deploying bespoke, real estate-specific Proptech such as RiskWise, can be a very cost-effective way to demonstrate ESG commitment to shareholders or investors.
So, with the benefits of embedding ESG into business strategy coming at little or no extra cost, can we really afford to ignore these matters any longer? We are already seeing the devastating impact of climate change on people and property around the world, with the California wildfires one particularly graphic recent example. In the absence of strong political will, businesses are in the prime position to address and influence global issues on a huge scale, whilst not having to rescind financial performance. ESG-integrated portfolios are likely to perform more strongly in the