The business case for ESG. Shouldn’t it just be business as usual?
Published on 20 February 2019
Environmental Social Governance (ESG) refers to “the three central factors in measuring the sustainability and ethical impact of an investment in a company or business”. These factors are becoming increasingly important investment considerations.
Since 1970, there
have been more than 2000 academic studies seeking to identify if there is a
link between ESG and financial performance [1] – this really isn’t a
new subject. The findings demonstrated high ESG ratings and strong
sustainability practices correlated to better financial performance across
multiple asset classes and regions.
ESG and Fund
Performance
Recent award-winning research found that
“sustainable” Real Estate Investment Trusts (REITs) benefited from higher
rental income and lower interest expenses, resulting in increased cash
distribution to shareholders [2]. A lower risk profile was also
identified attracting higher premiums to Net Asset Value (NAV). Transparency
through public disclosure was found to be a key facilitator of driving
improvement.
GRESB is one of the most popular voluntary certifications for private Real Estate portfolios.
Research shows that strong GRESB performance correlates to enhanced fund
returns for non-listed funds. Overall, a 3% fund return uplift was observed
between the lowest and highest GRESB scoring funds.
Both these examples
demonstrate the level of impact ESG is having in the real estate sector. More
companies are taking this seriously as it makes economic sense with increased
profitability, social sense through the implementation of ethical values and
environmental sense through reduced ecological impact.
People & Planet Before Profit
There have also been recent surveys, highlighting that nine out of ten millennials believe the success of a business should be measured by more than just financial performance [3], and 60% of millennials want to join companies that have a societal purpose [4]. Added to that, climate change has rapidly climbed their list of concerns, and this strongly correlated with their overall opinion of businesses. Young people and indeed our emerging workforce could not be clearer when it comes to how they expect businesses to act – people & planet before profits.
Conclusion
There are many and varied reasons why
you should be considering ESG as a fundamental part of your business strategy
and planning. It’s certainly something that we have been helping a large number
of our clients with. When we talk about setting an ESG strategy, it’s no longer
met with head-scratching and debates about the value it can bring but is
increasingly seen as a fundamental business need in today’s economy. Momentum
is building, but the real estate industry still has some catching up to do.
So the question is, why do we still need to be setting out the business case? Shouldn’t ESG be business as usual?
Water – The Ideal Impact Investment: Win-Win for Investors, Customers and the Environment.
Water is Impact Investing Impact investment conferences and media have begun to attract main stream investors as sponsors and participants often echoing the theme that, in our collective foolishness, we have allowed capitalism to maim our world – off balance sheet. This is a great step forward. However, the discussion often struggles to define clearly […]
What Obama, the Real Estate Sector, and 130 Investors Have in Common
While a typical summer is characterized by a lack of real news, leading the press to cover anything that’s even remotely newsworthy—or not – (we have a word for it in Dutch, “cucumber time”), the past two month have yielded enough stories to keep the average journalist busy: the Olympics, flooding in Louisiana, the ongoing […]
Resilience Insights Series: Part 5 Discussions of climate risk sometimes become highly technical and abstract. It is easy to lose sight of the fact that climate change is having real impacts on people’s lives. These are matters of life and death. Decisions that are made around managing real assets matter, not just to the bottom […]
