ESG: New Opportunities for Investors

ESG: Why is it in focus?

ESG, Environmental, Social, and Governance, is in focus for businesses and here’s why. Growing evidence is putting forward that when the ESG factors are incorporated into portfolio construction as well as into investment analysis, investors may gain long-term advantages in relationship to performance. Having strong ESG practices can seriously benefit companies and investors, potentially opening up vast amounts of capital, allowing the opportunity for companies to promote sustainable growth over the long-term and build a stronger, more dependable brand. As the market rapidly changes and competition increases, attention and concern for ESG issues has become crucial for success in the long-term. Some of the main institutional investors expect that the companies in which they hold address this accordingly and are proactive.

Some of the ways that combating the ESG issues reaches far beyond having an appealing PR campaign and pleasing shareholders:

  1. Competitive value can be uncovered with ESG initiatives.
  2. Stock liquidity can rise with strong ESG programs.
  3. ESG investors are more concerned with the values of the company and what occurs over the next decade, rather than with the short-term quarter.
  4. When a company holds a proactive stance on ESG issues, activists can keep calm.
  5. Holding strong ESG values is attractive and can result in employing the most gifted people around.

Recent ESG News

It is true that almost every publicly held company, as well as many privately held firms, are evaluating their own policies and programs in accordance with the increasing interest of investors in ESG metrics. The main focus is on climate change and inequality. ESG funds more than doubled in the year 2020, attaining $51.1 billion from investors. People are starting to have a lot more passion for tackling the issues of climate change and social injustice, and it is being reflected within the market. The funds that hold ESG principles invest in companies that advance racial and gender diversity, as well as in energy firms that use alternative energy. The growth within the ESG funds is primarily coming from younger investors who hold great concern for systematic issues. These investors are pouring money into these funds as they realize that people can address these issues through their own investments, and they are enthusiastic to do so. The choices have expanded, as the number of ESG funds grew to almost 400 in the last year 2020, 30% up from 2019. The possibilities of ending climate change and solving other systematic issues are growing, and it is an exciting phenomenon.

What does green or net-zero mean for properties and how does it work?

Major tech companies record accomplishments and achievements in regards to sustainability in order to outline a framework that will help them define the milestones they aim to accomplish. Some common measurements are emissions and the percentage of energy released using renewable resources.

In the real estate industry, City Developments Limited (CDL) recently became the first large company to sign the World Green Building Council’s net-zero carbon buildings commitment in Southeast Asia. A low carbon economy is on the horizon. Attention to product and process design come into play when addressing physical buildings and structures. These buildings can not segregate social economic and ecological environments, for human equity and diversity should be enhanced within natural systems. Social, economic, and environmental damage will be severely taken into account and mitigated when building construction, population growth, employment growth, and other land-use projects. All harm will be considered and reduced. According to the International Institute for Sustainable Development (IISD) the essential objectives of sustainable infrastructure include:

  • Lower carbon and environmental footprints
  • Protect natural ecosystems
  • Resiliency to climate change
  • Optimization of natural ecosystems and infrastructure environments
  • Financial feasibility and ongoing viability
  • Network local investment in business communities
  • High Foreign Direct Investment (FDI)
  • High Internal Rates of Return (IRR) well above Weighted Average Cost of Capital (WACC)
  • Movement beyond minimum labor standards and rights
  • Promotion of technology and industry innovation
  • High investment in stakeholder and employee education
  • High investment in Research and Development (R&D)
  • Focus on job creation

Ways to achieve net-zero in a real estate portfolio:

CDL provides a detailed guidance on how they plan to achieve net-zero portfolio – mainly through operational emissions within each and every building under their direct control. Tier 1 involves direct emissions and Tier 2 involves power-related emissions. The company plans to increase investments in smart energy management tech, as well as producing renewable energy, such as 100% renewable electricity. Another effective way in the works is to strengthen the supply chain engagement (indirect emissions), aiding suppliers when transitioning to low-carbon materials/methods.

As 2021 continues on, we just wait and see…

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Image: Photo by Markus Spiske on Unsplash