Real Estate Investors Put Premium On ESG

Soaring electricity prices are giving businesses more reason to reduce their energy consumption, leading commercial real estate owners and investors to focus more on environmental, social and governance (ESG) issues, according to a recent report from CBRE Research.

Nearly 70% of respondents to a CBRE’s “Strengthening Value Through ESG” survey reported an increased focus on ESG strategies last year, mostly because of higher energy prices and government-imposed ESG requirements.

“ESG is becoming a bigger topic than it was before the pandemic,” said Julie Whelan, global head of occupier thought leadership and research consulting at CBRE. “We think it’s because it’s the right thing to do and organizations are driven by their own values.”

While there are discussions about biodiversity, the priority among building owners and investors is decarbonization and reduced energy consumption, Whelan said.

ESG Essential To Compete For Tenants

In an environment where commercial properties face stiff competition to attract tenants, ESG policies are an important part of the equation.

“Big tenants have ESG goals, so there’s an element of marketability,” Whelan said. “A leased up building is a more valuable building.”

ESG initiatives cited as the most important in organizational goals included reducing greenhouse gas emissions, 67%; improving people’s health and well-being, 58%; and reducing resource usage or waste, 55%, according to the CBRE report.

In addition to the top three initiatives, 53% of occupiers said “reducing air, water or land pollution” and 63% cite improving social mobility, social justice, equality and/or diversity” as very important.

Additional ESG initiatives that are most important for investors include reducing any association with companies that are socially controversial, reflecting their priority to reduce overall risk and preserve asset value in any way possible.

Most respondents — 65% — said they’ve set net-zero goals, and ESG will play an important role in achieving them. The occupants of buildings plan to achieve their net-zero targets faster than investors. Half of the occupiers said they are establishing science-based targets compared to 39% of investors. 

Building features that reduce energy consumption are most important when investors are evaluating a property transaction, and nearly half of respondents said they would seek a discount or walk away from a deal if a building doesn’t have them.

More than half of survey respondents said they’re willing to pay a premium for buildings that have on-site renewable energy generation and/or smart technology that adjusts building operations to reduce environmental impact.

“Buildings account for 28% of all global emissions,” Whelan said. “If we ignore it, we’re not going to get to the net-zero and decarbonization goals we need to.”

Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.

Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.

Check Out More on Real Estate from Benzinga

• Bezos-Backed Startup Lets You Become A Landlord With $100
• Analysts Are Bullish On Industrial Real Estate: Here Are 2 Private Market Offerings To Gain Exposure
• Techies Will Soon Flood Austin Even Harder. Here's How To Invest In Its Real Estate Before That Happens