Long gone are the days of decarbonization efforts played with the intention to score PR points. Now, there’s external pressure, and the cost of that pressure is high. Why? Because it’s coming directly from your CRE investors.
In fact, according to a recent study from PwC, “49% of investors are willing to divest from companies that aren’t taking sufficient action on ESG issues.” If that number doesn’t have you shaking in your boots yet, you’re not paying attention.
Keep reading to learn more about what investors expect from their CRE investments, and get insight on what you can do using your sustainability plan to maximize capital gain in your assets.
Europe Paves the Way
Getting capital from CRE investors will be a challenge, if not impossible, for businesses that do not prioritize ESG goals. How do we know this? Well, let’s look at Europe.
European countries have remained global leaders in the fight against climate change. For example, the U.K. set their economies’ Net Zero goals, then U.S. cities continued to do so shortly after. Globally, CRE professionals should pay attention to the ongoing progress of ESG initiatives in Europe and its impact on the industry.
Last year, European investors and pension companies placed sustainability efforts as the top factor in where they decide to invest. For example, one of Denmark’s largest pension companies, PKA, has recently caught press attention after announcing an internal goal to reduce the carbon footprint of their properties by half by 2025.
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This trend has already moved its way into the U.S. with industry leaders —such as BlackRock CEO, Larry Fink—becoming more vocal about this prioritization of sustainability. Fink stated in his 2021 Letter to CEOs: “No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day…the tectonic shift we are seeing will accelerate further.”
Or, take it directly from Richard Coles, founder and managing partner of Vanbarton Group, who told us: “We continuously see the expectations of European pensions shape the priorities of the CRE industry. Right now, and for the foreseeable future, sustainability will be in focus.”
While prioritizing sustainability can be a great way to build brand equity, investors also know that stricter carbon emission goals and regulations are quickly approaching. As Net Zero goals spread across the country this year, CRE investors are looking ahead to make sure their investments are going to meet ESG goals and avoid heavy penalties.
Not only that, but they also now recognize that a sustainable building is a more valuable building. It’s no longer a trade-secret that reducing your carbon footprint also leads to a reduction of operating expenses and an increase in NOI and, subsequently, asset value. Investors recognize that if they’re investing in portfolios that have sustainable buildings, they’re investing in buildings that can provide them with a greater return.
How Companies Are Reacting
Creating a comprehensive ESG plan for your business will be an absolute necessity this upcoming year. For example, Savanna Fund created their ESG policy in 2020 to help promote sustainability across its portfolio assets. “Most large institutional investors are focused on partnering with real estate managers that implement sustainable initiatives across their investment program and make ESG a priority throughout their business,” said Nick Bienstock, Managing Partner at Savanna.
If receiving capital is a significant part of your business strategy, here’s our recommendation: Create and implement a decarbonization plan as soon as possible, and be prepared to show proof of your efforts through reporting from your sustainability intelligence platform or highly-regarded third party reporting, such as GRESB, to your investors when they ask for it.
Your Sustainability Intelligence Options
Climate mobilization for CRE properties has no easy, quick fix. As CRE investors set more strict sustainability goals and requirements, you should ensure that your assets are ready. Don’t find yourself playing catch up, or spending more money than necessary, to make the sustainability improvements you need.
Our sustainability tech team offers custom decarbonization plans for your portfolio so you can further your sustainability goals and meet those investor requirements. Get your custom decarbonization plan today.
