ESG Real Estate Investing

Savvy investors are now using environmental, social and governance (ESG) criteria to evaluate all aspects of their portfolios. Being a socially responsible investor can pay off, literally. Here, you’ll learn how your real estate investments can realize positive returns through sustainable opportunities that are good for you, your portfolio and the world at large. 


Read on to understand everything there is to know about ESG real estate opportunities, why ESG investing is so hot right now, the differences between ESG and Corporate Social Responsibility (CSR), and more. 


What is ESG?

What does ESG stand for in investing? ESG is an acronym for “Environmental,” “Social” and “Governance.” It can be tacked on to several opportunities and plans, and it indicates that a given organization, plan, strategy, goal, or opportunity is ultimately sustainable and in accordance with each of the three categories - environmental, social and governance. 


ESG is also used as the basis of an evaluation regarding the level of responsibility and sustainability for investment opportunities. 


Environmental

The first part of ESG relates the fact that many investors are increasingly concerned with the environmental sustainability and responsibility of their investments. These include concerns, in part, regarding carbon emissions, pollution of the air and water, deforestation, renewable and green energy, waste management and responsible water usage. 


Examples of environmentally responsible companies are those that filter wastewater or install solar panels. These mindful practices would allow a company to score better on the ESG scale. Investors looking for environmentally sound real estate investment opportunities might seek out those that focus on renewable energy or water conservation.


Social

EGS policies rank well under the social category when the following are addressed appropriately: 


  • Diversity
  • Data security
  • Customer relations
  • Sexual harassment policies
  • Human rights
  • Fair labor

For example, coffee bean producers that ensure their source labor is fairly compensated would improve their ESG ranking.


Governance

Under governance, ESG applies to social issues, largely in management systems. A company might, for example, make contributions to political candidates who promote environmental policies.


Environmental

Social

Governance

  • Carbon emissions
  • Air and water pollution
  • Deforestation
  • Green energy initiatives
  • Waste management
  • Water usage
  • Employee gender and diversity
  • Data security
  • Customer satisfaction
  • Company sexual harassment policies
  • Human rights at home and abroad
  • Fair labor practices
  • Diversity of board members
  • Political contributions
  • Executive pay
  • Large-scale lawsuits
  • Internal corruption
  • Lobbying

What is ESG Investing?

ESG investing is a form of investment that takes the three pillars of ESG into consideration. It could be about investing in solar power, or it could entail hiring special Human Resources teams to onboard a diverse workforce. 

ESG investing could also revolve around developing sustainable and socially responsible corporate governance. ESG investing is about investing in companies, property and assets that rank high on the ESG scale or systems that can make an organization ESG compatible.

While it’s widely used by stock investors, ESG in real estate can easily be applied as well. Of course, the type of property you’re looking to invest in will come into play. Investing in rental property, for example, wouldn’t really lend to any governance concerns. But there are ways you can use ESG real estate investments, like by seeking out ESG REITs, to promote and diversify your portfolio through an ESG lens.

Benefits of ESG Investing

There are numerous benefits of ESG investing. For a start, as an investor, investing in ESG can be good for both your reputation as well as your portfolio. Diversity of backgrounds garners more robust group thinking, and sustainable planning tends to be more cost-effective in the long term.

Higher Returns

According to a 2015 Oxford study, ESG is in the best interest of managers and investors to apply sustainability considerations in their decision-making processes. Quality can help companies develop a competitive advantage and boost performance.

Lower Risk

Simplified portfolios can reduce some of the risk investments are exposed to. It can also help protect investors, as ESG companies elevate their level of legalistic impeccability. Consider the VW emissions scandal, in which the company was found to have been in violation of the Clean Air Act. ESG investing can be viewed as a hedge against such things.

The Difference Between ESG and CSR

Corporate Social Responsibility (CSR) and ESG are similar, but ESG tends to be associated with investing, whereas CSR is usually about how a given company strives to be more socially responsible. ESG is also more comprehensive in nature compared to CSR, which focuses largely on social and human resources issues.


ESG and Real Estate

What does ESG stand for in investing? ESG in real estate in particular is considered to be a driver of value in commercial property. It’s about using ESG real estate funds for environmentally sustainable assets and investing in them. 


Real Estate ESG funds can allow investors to spend their resources on properties that are more environmentally sound to save money, improve their public persona and potentially prepare for future environmental regulations.


ESG REITs

Real Estate Investment Trusts (REITs) are companies that own, operate or finance productive real estate. ESG REITs are groups that own, operate or finance productive real estate with a focus on acquiring and maintaining properties that are ESG compatible.


Investing in EST REITs isn’t as difficult as you might think. 

  • Decide if you want to DIY or if you’ll want some guidance. If researching and selecting investments on your own is exciting, you can go that route. You’ll need to open a brokerage account to start. Otherwise, you can always use in-person or robo-advisors.  
  • Understand ESG policies. Figure out what values are important to you and then look for investment opportunities that align with your ideals. 
  • Find your investments. You’re ready to start investing, and to feel good about the investments you’ll make.

Final Thoughts

Knowing the ins and outs of ESG is important for even the savviest of investors. Keeping your finger on the pulse of the world of real estate and ESG investing is going to be key to growing your portfolio and maximizing your return. 


Connect Invest’s blog is a resource for investors all over the globe. Learn more about how Connect Invest can help you make smart, resourceful, responsible investment choices. 


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