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How ESG Impacts Real Estate
You’ve heard the saying, “You can’t manage what you can’t measure.” Well, that’s especially true regarding sustainable real estate (SR) and ESG investing. By that, I mean metrics like local poverty, unemployment, and crime rates are no longer just essential indicators of a neighborhood’s safety or future growth potential; they’re also key factors in determining how much your investment might grow over time.
And as land prices continue to increase across the globe, these metrics play a bigger role than ever in deciding where—and how big—your next investment should be.
It used to be that only those who were passionate about sustainable communities would pay attention to environmental impact or social justice issues when making an investment decision; now, we’re all faced with making decisions based on ESG factors as well as traditional financial ones.
So whether you’re just starting out investing or looking for ways to diversify your portfolio even further than it already is—or both – here are some facts about how ESG impacts real estate today shared by TheCotocon Group LL97 service provider.
In short, ESG is a broad term for the factors that impact an organization’s environment, society, and governance. It’s important to understand these three dimensions because they can significantly impact your real estate investments and your future financial success.
How Are ESG Trends Impacting Real Estate?
As you look for a home, it can be easy to overlook the impact of ESG trends on the real estate industry. However, many homeowners and renters are increasingly looking for homes that meet their ethical standards and support their values.
This trend will only grow as millennials become more financially independent and can make purchasing decisions based on their criteria.
Does ESG Improve Investment Returns?
ESG is a term that refers to environmental, social, and governance factors. It is used more frequently by investors who want to align their investment decisions with their values.
A study from Dimensional Fund Advisors shows that ESG-based portfolios have outperformed traditional portfolios over the last decade, with an average annual return of 3 percent higher than those without ESG considerations. While this may not seem like much, it can be the difference between losing or making money on your investment portfolio.
ESG has also been shown to help investors avoid losing money when times get tough in markets such as 2008-2009 or 2000-2001, where traditional investments performed poorly compared to stock markets overall because they did not include companies with strong environmental and social records (like Ford Motors).
Is Sustainable Real Estate Growing or Shrinking?
Sustainable real estate is growing and is expected to continue growing for the foreseeable future. According to Green Building Councils, there are currently over 2 million LEED-certified buildings worldwide.
This number has doubled in the past 10 years, from 500 thousand LEED buildings in 2007 to 1 million today. In addition, a recent survey by CoreNet Global revealed that 85% of respondents believe sustainable design should be mandatory for all projects regardless of size or type.
What Kind of Changes Can You Expect in the Future?
The future of real estate is uncertain, but some trends are likely. In the next decade or two, you can expect to see:
- More sustainable real estate. As more people seek sustainable options, developers will find ways to build green buildings that meet their needs and standards.
- More ESG-focused real estate. ESG investing has increased over the past decade, and we anticipate that trend will continue as investors become more aware of the importance of sustainability in their investment decisions (and lenders start demanding Sustainability Reports).
- More ESG-focused investors and lenders want to avoid properties with negative environmental impacts on nearby communities or neighborhoods—or even those that don’t offer tangible benefits like reduced utility bills!
Sustainability focuses on the environment, while ESG focuses on the environment, social issues, and governance. While sustainability is not necessarily a subset of ESG, it is considered an essential field component.
The environment, social issues, and governance are becoming increasingly important factors in real estate
ESG can help you make better decisions about how a company is doing on the environmental, social, and governance fronts. If you’re considering buying a house, it’s essential to understand how ESG factors can affect your decision.
How ESG impacts real estate: conclusion
The research suggests that ESG factors should become increasingly important in real estate investment. The environment, social issues, and governance are increasingly important factors in real estate.
This is partly because they’re becoming more mainstream but also because investors are starting to look at these issues and make decisions based on them alone or in addition to traditional financial metrics like return on capital employed (ROCE).
As we mentioned, there’s no shortage of data available about sustainability trends in the global market today. More research will be done as time passes since it is such an important topic for investors who want their portfolios to reflect their values and beliefs.