5 Reasons Why Real Estate is Going Green
Updated: Mar 18
The real estate industry requires investors to plan ahead and think long term. Commercial property owners and real estate investment trusts need to move away from short-term thinking which has historically come at the expense of the environment or society. For a long time, the main argument was that being “green” didn’t offer enough of a return on investment for shareholders. However, with recent technological and market changes, it’s becoming more vital and profitable for people in the property to be thinking sustainably. Here are the 5 significant reasons why.
1. Know The Millenial Market
There’s no doubt that recent generations have become environmentally conscious. And with the majority of the market shifting towards the millennial population, it has resulted in a considerable rise in sustainable investments that align with personal values. As millennials accumulate and inherit more wealth, it’s vital for investment trusts and property managers to keep in mind the values of the eco-friendly investor.
“The moving from a passive investor population… to a population that is self-funding vie their defined contribution plans. These Millenials will demand more active involvement in their own investments as they wish to be in control of their own destiny”
Greg Cobb (Boyd Watterson Asset Management)
ESG (Environmental, Social, Governance) is becoming more and more of a factor as 84% of Millenials “cite investing with ESG impact as a central goal” - Morgan Stanley. This number is set to become even higher as numbers of eco-friendly investors continue to grow.
2. ESG Scores
There’s growing evidence that more sustainable buildings achieve a higher financial return. With that, there’s an increasing demand for more ESG tracking. There are Benchmarking authorities which will be able to assess your property and decide what ESG score it deserves. One of the most popular ones is called GRESB, which is very prominent in North America and Ireland.
Alongside GRESB, you also have BREAM and LEED. ESG Certificates are becoming vital criteria for investors because it allows investors to look objectively at their potential property investment. Scores also help asset management and property owners find ways to improve their ESG rating and to show investors how they have been growing year on year.
3. Using Technology to Help improve ESG
Technology has done wonder for every industry, particularly in the fight against climate change. In particular, The Internet of Things (IoT). Using IoT technology involves connecting everyday items to the internet and then to be able to send and receive data. This then helps commercial building become “smart buildings”. The IoT allows landlords and property managers to enhance their buildings. To make them easier to manage and more sustainable. As well as providing tenants with more comfort and safety.
Here at ZiggyTec, we connect utilities (gas, water and electricity) to a cloud network. That data is then able to be viewed on our live platform, the property company’s platform of choice or an excel file. This helps property managers to spot any irregularities or problems quickly and also helps to improve their ESG score.
4. Invest in ESG and Avoid Future Losses
There has been plenty of corporate scandal regarding ESG. In 2019 alone, 3 out of 5 of the most prominent ChairPerson/CEO resignations in the USA were related to ESG. and “in the last five years, corporate ESG blunders have destroyed more than half a trillion dollars of market cap in the US market alone” - Merrill Lynch (Bank of America). A lot of this could be avoided by investing in adequately monitoring and analysing your ESG performance and continuously trying to improve it.
5. Create a Climate Crisis Plans
The UK-based Investment Association recently sent shockwaves through the real estate community by demanding that all of their companies have a climate crisis plan in their annual report in the next three years.
“Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed, ultimately hitting savers’ pockets. Companies need to be looking at the impact of climate change on their business, products and strategy and set out to investors how they are responding to these risks."
Andrew Ninian (IA Director of Stewardship and Corporate Governance).
With one of the largest investor groups in the world making these demands, it won’t be long until the rest start demanding climate crisis plans soon too.
The topic of sustainability certainly isn't dying down soon and it will be interesting to see how the real estate investing industry is progressing.
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