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ESG principles key for sustainable real estate investments

ESG principles key for sustainable real estate investments

Sustainability is a hot topic and a key driver of innovation. However, it is a journey, not a destination.

Increased participation in the 2020 GRESB real estate assessment shows that sustainability has become increasingly crucial to real estate investors. Key benefits include competitive advantages and improved long-term financial performance compared to your competitors.

As a real estate owner or manager, it is vital to keep the following scenario in mind. If we think of the market as a car race, with profit representing how fast our car can go, our ESG performance is how we handle ourselves on the race track and the type of car we’re driving. So, to impress socially conscious investors, you need to maintain a high ESG rating by looking at how you’re operating your business, not just how much money you’re making.

One way to do this is to formulate an ESG strategy to underpin your business practices and operations. By following sustainable procedures and environmentally friendly practices, you can help benefit the environment and people and help your business save resources, money, and time. Read this article to find out how water efficiency is a fluid investment for your ESG strategy.

The three key focus areas of sustainability are planet, people, and profits, also known as ESG.

 

What are ESG criteria, and why do they matter?

Environmental, Social, and Corporate Governance (ESG) criteria are used by socially-conscious companies, investors, and shareholders to measure a company’s sustainability and social impact.

ESG criteria can be separated into three main ‘pillars’: Environmental, Social, and Governance.

Environmental criteria look at how your company performs as a custodian of nature. This includes:

  • Action on climate change, sustainability
  • Greenhouse gas emissions and reductions
  • Water management

Social criteria deal with how it manages its relationships with employees, suppliers, customers, and the communities in which it operates. Such issues as:

  • Diversity
  • Human rights
  • The way the company treats its clients and customers

Governance criteria consider your company’s management structure, executive and employee compensation, internal practices, audits, and shareholder rights. For example:

  • Risk management
  • Tax transparency
  • Anti-corruption measures

These factors are comprehensive and cover several issues that are likely not applicable to some companies or industries. So, companies need to understand which of these issues are critical for their business and will be likely to impact its financial condition or operating performance.

 

ESG in the real estate industry

ESG programs allow real estate companies and owners to identify relevant material risks and opportunities they can consider when acquiring assets and in their business strategy.

According to GRESB, “Managing risk creates long term value creation, drives sustainable financial performance and increases shareholder value.” A recent study by the CFA Institute shows that 65% of investors said their motive for considering ESG issues was to help mitigate investment risks.

Water management is one environmental aspect that should be included in your ESG strategy.

 

Water management in your ESG strategy

By reducing your property’s water consumption and improving its water efficiency, you can actively fight climate change. Position your company ahead of the curve by utilizing Smartvatten’s remote water monitoring service to save money, time, and resources.

The most successful real estate portfolios:

  • Have a comprehensive strategy and data management platform, a competitive edge and can quickly adapt to meet local environmental regulations and avoid fines, penalties, and potential reputation risks.
  • Track and monitor their water usage across their properties to be better positioned to mitigate future price spikes (specific geographic locations are prone to price fluctuations due to climate change). By proactively identifying properties in areas subject to risk, real estate owners may negotiate long-term fixed-price power purchase agreements, thus saving money.

Smartvatten offers all of these features and more. Learn more about how Smartvatten’s water management solution can help improve your property’s water efficiency as part of your ESG strategy.

 

A certificate is worth a thousand words.

Also, it is worthwhile for your property to showcase its high ESG performance through internationally recognized certifications such as GRESB, BREEAM, Green Key, and LEED. These certifications help prove that your company is verified as sustainable to robust standards and helps set it apart from the competition.

These certifications help to:

  • Identify areas of risk, opportunity, and impact in your portfolio and assets.
  • Attract new investors seeking more comprehensive risk, opportunity, and impact analysis.
  • Systematically improve your investor engagement.
  • Get a clear picture of your ESG performance, how it compares against your peers and what you can do to improve.
  • Report validated ESG performance information to the market using a global industry standard.

Companies that pursue high ESG performance enjoy several financial benefits such as:

  • Increased appeal to investors – green and socially responsible investors are more likely to invest in companies with good ESG ratings.
  • Improved performance 
  • Better financial indicators

It is highly likely that sustainable investing will soon become the standard way to invest. To achieve this, investors need to ensure that their fund management is aligned with their intended positive social impact.

Lead the way to a greener, more sustainable, and water-efficient future with Smartvatten. Request a demo today.