Updated: Feb 11
Environmental, Social, and Governance or "ESG" has become a critical business consideration worldwide.
For instance, real estate investors have an increasing focus on sustainability.
However, ESG in Property Tech and Real Estate can be much more impactful.
ESG Prop-Tech & Real Estate
Not too long ago, real estate embodied the epitome of capitalism.
The trend, however, is growing quite the opposite way. The application of ESG standards to real estate (notably by governments and developers in many developed countries) has shown that this asset class is also relevant when applying these guiding principles.
Awareness is growing that real estate can have a significant social impact. Either through rehabilitation of public spaces (indirectly attributing value to existing real estate), affordable housing, social housing, and care centers or an environmental focus investment on new buildings such as green buildings.
Vital for investors
Sustainability has become increasingly vital to real estate investors. This is evident from developing the Sustainability guidelines of the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) to also adhere to investors' needs.
Investors' correlative appetite for ESG closes the loophole where more (long-term) value is attributed to real estate assets. Medium-to-long term profit is considered and kept with a real estate asset's lower risk volatility.
ESG is here to stay and will increasingly shape and influence real estate valuation and investment as investors wish to allocate their commitments under this banner.
Impact on the community
However, the impact of ESG on the real estate industry goes beyond what mentions above. ESG, aside from fostering eco-friendly buildings, also allows space to include considerations about the impact of properties on the community, covering aspects like diversity. The real estate industry must respond to this challenge by creating opportunities through social impact investing.
In practice, the major obstacle is that investors will need to reinvent their traditional investment models to match the local community's needs.
ESG and infrastructure
Real estate and infrastructure are closely related. For example, the real estate industry is a significant consumer of energy. Therefore, the construction of more sustainable buildings, e.g., utilizing new eco-friendly materials or innovative technological heating or ventilation, not only helps the environment but also boosts the return of the respective real estate investment, improving investment performance.
Governments worldwide are increasingly fostering these new construction methods to improve the carbon print of cities and emissions mitigation. As such, it is also relevant to take a quick look at the impact of ESG on infrastructure.
Overcoming New Infrastructural Challenges
Implementing an efficient ESG-focused infrastructure system is vital for undeveloped countries – it provides access to the most basic services like energy and water for the community. Also, for developed countries, it may help to face new challenges, such as the population increase in urban areas and environmental concerns.
Additionally, ESG standards are already proving to be decisive in infrastructure closings. This is because investments are beginning to face community opposition, often due to the lack of ESG considerations, resulting in costly delays or changes to the initial project.