ESG investing, or also known as Environmental, Social, and Governance, are non-financial factors investors use to measure an investment or company sustainability. “Environmental factors look at the conservation of the natural world, social factors examine how a company treats people both inside and outside the company and governance factors consider how a company is run.”1 Below are some other factors ESG considers:
Environmental
- Carbon emissions
- Air & water pollution
- Deforestation
- Green energy initiatives
- Waste management
- Water usage
Social
- Employee gender & diversity
- Data security
- Customer satisfaction
- Company sexual harassment policies
- Human rights at home & abroad
- Fair labor practices
Governance
- Diversity of board members
- Political contributions
- Executive pay
- Large-scale lawsuits
- Internal corruption
- Lobbying
During an Alternatives Forum, Goldman Sachs Senior leaders across the Real Estate business, discussed key trends impacting asset prices today including the role of sustainability in real estate investing. According to Nora Creedon, “real estate properties make up about 40% of the worlds carbon emissions and about 40% of the world’s energy usage. Regulators have taken notice of this and have taken aim to enact owner regulations; this has inspired tenants to desire more sustainable green buildings. Tenants are willing to pay the premium rent and surveys have shown that these tenants really do care about the properties being deemed sustainable. Since the cost of green technology has gradually decreased, developers can now include these desirable assets into their builds. These green technologies save in operating expenses and capital expenditures which keeps the bottom line low.”2
Nora Creedon continues with stating that “capital markets are going to move more and more towards green and sustainable assets overtime. ESG funds and other dedicated sustainability funds are going to come to the private markets too. This means there is a possibility for a cap-rate premium or evaluation premium on our most sustainable assets.”2 A Morgan Stanley study has found that ESG investment benefits include higher returns than traditional funds and a lower risk than traditional funds.
Another avenue of ESG investing in real estate that has taken a step further than ESG is impact investing. Impact Investments “are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”3 The world’s most pressing challenges are being provided capital from the growing impact investment market. The sectors benefitting include sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education. Ways to provide a positive impact to the world and society is to be conscientious of the “resources and energy used to construct, refurbish, maintain, and operate buildings”.3 This helps keep carbon and energy usage low, allowing for a greener project that is beneficial to the people and the world.
Understanding ESG investing in correlation to Impact Investments, Paradyme has adapted a new motto when selecting new projects and that motto is: “Paradyme believes that the best way to do well is to do good”. Following that motto, Paradyme added three new projects to the platform that provides investors with the ability to contribute towards an ESG investment which in turn provides a positive impact investment to their portfolio. Within the design of these projects, developer BCC, factored in the support of low emissions, zero waste and eco living. More information about their green technology can be accessed at Green Technology in Real Estate Development4. While helping the environment, these projects are also helping those within the community, providing affordable low-income housing/roommate options, while also giving neighborhoods/cities a new revamped look. If you would like to learn more about these new exciting investment opportunities and help make a positive impact on the world, please click below.
Works Cited
Beach City Capital. (2021, July 7). Green Technology in Real Estate Development. Retrieved from Beach City Capital: https://blog.beachcitycapital.com/green-technology-in-real-estate-development
Benson, A. (2022, March 14). Environmental, Social & Governance (ESG) Investing and How to Get Started. Retrieved from NerdWalley: https://www.nerdwallet.com/article/investing/esg-investing
Goldman Sachs. (2022, January 21). Real Estate’s Foundational Role in ESG. Retrieved from Goldman Sachs – Asset Management: https://www.gsam.com/content/gsam/us/en/institutions/market-insights/gsam-insights/2022/Real-Estates-Foundational-Role-ESG.html
Schroders. (2019, October). Impact Investing in Real Estate. Retrieved from Schroders: https://www.schroders.com/en/sysglobalassets/digital/uk-real-estate/impact-investing-in-real-estate.pdf
