As the real estate industry evolves and adapts to the future, every aspect of the business is changing, too. As a result, owners’ and investors’ priorities are evolving as climate change and community becomes more important. ESG principles can help investors shepherd the built environment into a more sustainable era. So, what is ESG in real estate investing? And further, how will it affect your portfolio?
Investing in real estate according to ESG principles is better for you, your portfolio, and the planet. In this post, we define ESG and the benefits of investing in real estate with an ESG mindset. Then, we go over ESG trends in real estate that you can apply to your properties.
This post covers:
- What is ESG?
- Benefits of investing with an ESG mindset
- How do you apply ESG to real estate investing?
What is ESG?
ESG stands for “environmental, social, and corporate governance.” It’s a new set of criteria investors use to decide which companies and properties to invest in.
Investors have always considered a variety of factors before investing in a company or property. However, the rise of ESG principles means that today’s investors have more than just profit in mind. Instead, they’re also considering sustainability and their local communities.
In real estate, ESG investors look for three things:
- How a property treats the environment.
- How a property contributes to its local community and society.
- How a property governs itself.
ESG in real estate
Over the past few decades, ESG thinking has become more popular than ever. Real estate, in particular, is one business that has the potential to be revolutionized by ESG thinking.
Take a look at the stats:
According to the United Nations, the built environment is responsible for nearly half of all CO2 emissions. So, there’s a lot of room for change. Additionally, there’s a lot of opportunity for the investors who will make this change happen.
In short, ESG’s impact on real estate can create a more sustainable, more connected world. Because of how large the real estate sector is, ESG in real estate has the potential to make a massive difference.
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Benefits of investing in real estate with an ESG mindset
ESG investors in real estate can count on these benefits.
The benefits of ESG property investment are:
Better for the environment
By doing your part to fight climate change, you contribute to the safety and health of our planet for future generations.
Remember, the real estate industry’s contributions to climate change come from two sources: constructing buildings and operating them. So, even if you aren’t constructing new buildings, you can still make small changes to optimize existing properties. Then, you’ll reap all of the benefits of ESG investing.
Saving money on operating costs
Real estate ESG principles don’t just help you fight climate change — they’re also good for your bottom line.
In fact, the money that you don’t spend on utilities, heating, or lighting is money you can ultimately use for other purposes. So, any technology that helps you cut down on those costs serves two purposes: it saves you money and it keeps the planet green.
Attract residents with sustainability
Sustainability is a significant priority for future generations of renters. According to Pew Research, three-quarters of Gen Z see climate change as a source of overwhelming worry. So, as Gen Z enters the workforce and takes up larger shares of the rental market, smart businesses are already adapting to their preferences.
By prioritizing ESG real estate investing, you’ll stay ahead of your competition and attract the residents they can’t.
How do you apply ESG to real estate investing?
Here are a few examples of ESG for real estate that you can add to your properties.
3 ways to apply ESG to real estate investing:
- Zone your building for mixed-use
- Use green construction methods
- Use IoT technology to manage your building
1. Zone your building for mixed-use
By zoning your building for mixed-use, you do your part to satisfy every part of ESG in real estate.
Mixed-use buildings are good for both the environment and the social fabric of your neighborhood. By hosting both residential and commercial businesses under the same roof, you increase your neighborhood’s walkability. As a result, residents won’t have to get into gas-guzzling vehicles to access goods and services.
Local businesses will give your local economy a huge boost. And this boost can go a long way toward turning your neighborhood into a vibrant, thriving place — which helps increase property values.
2. Use green construction methods
The real estate business is one of the largest contributors to climate change. This contribution can be split into two major contributors: operating buildings and actually constructing them.
In some cases, you can cut out much construction — and the emissions that come with it — by repurposing existing structures on your property. Then, when you do have to add new constructions, save time and money by choosing recycled or locally sourced materials.
By using locally sourced materials, you cut down on costs associated with transporting heavy materials long distances. What’s more, you’ll no longer be responsible for the emissions from the trucks that would have transported the materials.
3. Use IoT technology to manage your building
When managing a building, you run up against several recurring costs. These costs are associated with heat, lighting, and HVAC. But all of these costs can be reduced with the help of the Internet of Things.
Let’s see how a building’s lighting system changes after you hold it to ESG standards:
When a room is already well-lit by daylight, there’s no need to add artificial lighting. Likewise, when there’s nobody in a room, there’s no need to light it.
Motion sensors and smart glass can detect the amount of sunlight coming through a window. To that end, you can update the lighting system in your building so that lights only turn on when they’re needed and turn off automatically when they’re not. This will reduce emissions as well as netting you big savings on your power bill.
Takeaways
- ESG stands for “environmental, social, and corporate governance.”
- ESG is a new way for investors to choose which projects they want to invest in according to new criteria, like sustainability and community impact.
- In real estate, the benefits of investing according to ESG are: ESG products are better for the environment, they save money on operating costs, and they attract residents with sustainability.
- Some specific ESG initiatives in real estate you can apply to your properties are zoning your buildings for mixed use, using green construction methods, and using IoT technology to manage your building.
