ESG and your bottom line
Despite political pushback, there’s no denying that sustainability is good for business
Why ESG is a worthy investment for real estate professionals
ESG is facing backlash. Deemed by detractors as “ideological investing,” the practice of considering the planet and people in business might seem like a passing fad. Experienced multifamily property owners and investors know otherwise.
The popularity of ESG in real estate circles has been steadily growing as demand for eco-friendly communities increases. Customers and investors want sustainable assets, and tenants prefer living in energy-efficient units to reduce their utility costs. Despite the naysayers, owners who invest in climate-friendly business practices will enjoy higher NOI, plain and simple.
Here are some of the data-backed benefits of embracing ESG:
While others debate the merits of ESG as they relate to ideology, those who are more interested in raising the quality and value of their portfolios are seeing returns. ESG practices undoubtedly increase the value of properties and assets. As more tenants prefer green properties, owners can charge higher rents. McKinsey found that nearly 70% of consumers would pay an additional 5 percent for a green product if it performed as well as a non-green competitor across multiple industries including building. LEED Platinum-certified office buildings are seeing particularly high rents and are projected to see 0.51% more annual growth than non-certified properties.
In reaction to climate change, consumers are supporting businesses that prioritize sustainability. Investors are following the market. According to EY, 39% of investors currently invest in ESG products, and one in five say they decided not to invest with a manager because their ESG policies were inadequate.
ESG investments also perform well. Notably, a Morgan Stanley survey showed that 72% of surveyed investors believe that companies with good ESG practices can achieve higher profitability and are better long-term investments. Even in REITs, Barron’s ten most sustainable REITs had an average dividend yield of 0.9% higher than their peers in the S&P 500.
Access additional savings
Not only do pro-ESG owners enjoy higher rents, they also see lower utility costs and take advantage of rebates and tax credits for sustainable building improvements.
Occupants in Energy Star buildings consume 8% less energy than occupants in less energy-efficient buildings. U.S. multifamily properties can save $3.4 billion in utility costs by improving energy efficiency, according to ACEEE.
If that weren’t enough, Congress recently passed the Inflation Reduction Act, a sweeping bill that offers a large chunk of funding and incentives for building upgrades, with $9 billion for consumer home energy rebate programs and 10 years of consumer tax credits for clean and energy-efficient home improvements.
Leveraging investor and tenant enthusiasm, saving on utility costs and accessing green financing and incentives lead to higher NOI for owners, proving ESG is good for business.
Lower a portfolio’s risk
Even if they don’t love higher profits, ignoring ESG could be risky for multifamily property owners. With climate change bringing more natural disasters, higher temps and widespread drought, property owners and managers must mitigate their risk. Accessing property vulnerability and creating contingencies for events like utility interruptions during storms using solar and electricity capture systems will help owners protect their assets and tenants. Owners truly can help save the planet while protecting their portfolios.
Benefits beyond the bottom line
Investors demand ESG policies, and tenants want to live in healthy and safe units. Overwhelmingly, companies that position themselves with strong ESG propositions will see higher income and lower risk. More importantly, they have the opportunity to impact the climate crisis directly. The real estate industry is driving 40% of the world’s carbon dioxide emissions. In the United States, homes, including multifamily and apartments, are responsible for 20% of the country’s greenhouse gases.
We won’t go so far as to say it’s the “right thing to do” because many might debate us on that. But a recent UN report concluded that the wider benefits of nature, beyond profit and economic growth, have largely been ignored by the market, leading to climate disasters. ESG is good for business, but living sustainably is the key to the planet’s health and our well-being.
If you’re starting your ESG journey or looking to scale your strategy, consider outsourcing to EcoSystems and contact us today!