While Socially Responsible Investing (SRI) has been a dominant theme in the European markets for some time, it has recently gained significant traction in the U.S markets as well. In fact, SRI-focused investment strategies now account for over one-fourth of total assets under management in the U.S.1 This growth is only likely to increase as more fund managers stateside begin to recognize that a company’s market outperformance is linked to its sustainability outperformance over the long-term.
The Rise of ESG Investing in Real Estate
As SRI gains momentum in the US a corresponding surge in the application of environmental, social, and corporate governance (ESG) criteria by the real estate investment management community has followed. There are several factors driving this rise in the incorporation of ESG into real estate investment decisions. The risk posed by increasing regulation around greenhouse gas emissions is one often cited driver, as well as growing energy costs, however, the financial risk from failing to adapt to changing consumer demand may be the most significant.
Putting Their Money Where Their Values Are
Millennials are now the largest generation in the American workforce and by 2030 will increase their net worth five-fold.2,3 Consumers in this age cohort place a greater level of importance on corporate sustainability than any generation that preceded them and are predicted to be a primary driver behind an estimated $20 trillion to be poured into SRI in the U.S. over the next two decades.4 Undoubtedly, this SRI wealth transfer will drive the U.S. real estate sector towards increased sustainability as millennials seek to align their holdings with their values.
What This Means for Real Estate
What does this mean for real estate in the U.S.? Real estate investors and developers must listen to this demographic’s growing demand for increased sustainability and look to build ESG considerations into their portfolios so they can turn this into a positive opportunity for value creation rather than a financial risk. A leading way to evaluate a real estate portfolios ESG criteria is via GRESB. GRESB’s comprehensive framework for the real estate sector provides an unrivaled set of data and insights for investors and developers to make informed decisions on how to best integrate ESG considerations. With increasing US demand for clear insights into the sustainability performance of real estate assets, investor use of GRESB’s analytical tools to monitor their investments will undoubtedly grow in the years ahead.
Antea Group US is an Inogen Environmental Alliance partner. Inogen Associates Delta Simons (UK and Ireland), HPC (Germany, France, Italy, Poland, and Spain), and Denkstatt (Austria, Bulgaria, Hungary, Romania, and Slovakia) partner with GRESB in Europe and are supported by a global network with offices located on every continent, more than 6,430 staff worldwide and projects completed in more than 120 countries. Inogen represents a unique and innovative business model with a single point of contact delivering a competitive, cost-effective service around the globe.
¹ Sustainability Investing Basics. US SIF: The Forum for Sustainable and Responsible Investment. Retrieved from: https://www.ussif.org/sribasics
² Fry, Richard. Millennials are the Largest Generation in the U.S. Labor Force. Pew Research Center. Retrieved from: https://www.pewresearch.org/fact-tank/2018/04/11/millennials-largest-generation-us-labor-force/
³ A Look at Wealth 2019: Millennial Millionaires. Coldwell Banker. Retrieved from: https://blog.coldwellbankerluxury.com/a-look-at-wealth-millennial-millionaires/
⁴ ESG Matters- US: 10 Reasons You Should Care About ESG. Bank of America / Merrill Lynch. Retrieved from: https://www.bofaml.com/content/dam/boamlimages/documents/articles/ID19_1119/esg_matters.pdf