“Ethical investing” has been a buzzword for a while — both in the real estate community and the financial world at large.
Real estate has power over the way we live and work and how our communities are formed, which means that real estate investors are uniquely positioned to deploy resources to develop socially-responsible causes. Doing right by investors, employees, tenants, and the community is a long-term mission — and we think it’s one of the most rewarding things about this business.
There are some ESGREITs that build value for their communities through real estate investment.
What does ESG mean?
Environmental, social, and governance investment (ESG) are investment opportunities related to a company’s environmental and social impact and operations. Companies are given scores based on: labor practices, data security, management, resource use, human rights, community impact, and emissions. ESG scores are determined through artificial intelligence, and a vast set of source material — usually a combination of media coverage and self-reporting. ESG scores give investors a better-informed picture of what their money is funding.
What value does ESG offer?
ESG scores allow investors to make choices that align with their values, but there are potential problems. There are no universally consistent metrics for calculating ESGs.
Although ESG investing is still fairly new, research suggests that many ESG funds are outperforming traditional funds. The Morgan Stanley Institute for Sustainable Investing concluded in a 2020 analysis that the median total return for U.S. sustainable equity funds was 4.3 percentage points higher than traditional funds.
A 2021 study from Nareit found this:
ESG REITs we’re excited about
Equinix is datacenter REIT with one of the strongest ESG ratings in the world and a smart set of policies that help increase efficiency. In addition to serving about half of the Fortune 500 and operating 200 data and internet connection centers worldwide, Equinix realized that their facilities presented an opportunity for innovation. Because datacenters consume a huge amount of power, they aren’t great for the environment and have large operating expenses.
Equinix consistently invested in clever tech solutions like locating fuel cells close to critical infrastructure to decrease travel times and waste, using motion-activated lighting systems, and investing in insulation to reduce energy usage. They also reduce energy costs by providing better cooling and help minimize runoff by covering their roofs with grass (which is just incredibly cool).
Equinix’s ESG strategy protects the environment and also improves returns by reducing expenses. It’s just one illustration of an important theme: positive impact and strong returns frequently go hand-in-hand.
Prologis is a logistics REIT with a AAA ESG rating. Offering warehouse space in locations close to urban centers is a critical part of Prologis’s strategy: vendors will want to use their space because shipping takes less time and reduces traffic and pollution when the items start their journey only a few miles away. Prologis also covered some of their roofs with solar panels, which cut energy costs and reduced fuel reliance. Some of Proligis’ buildings reduce heating costs in the winter by using boreholes to store heat underground during warmer months and pump it back into their buildings during cooler months. So cool.
Alexandria Real Estate Equities
Alexandria Real Estate Equities is an S&P 500 REIT that focuses on office property in major urban centers, and one of the most-sustainable in its category. Since 1997, ARE has offered investors great returns, while also creating 78 Leadership in Energy and Environmental Design (LEED) projects, funding 340 non-profits, supplying lab space to tenants working on COVID-19 research, initiating a fund to combat the opioid epidemic, and partnering with veterans’ organizations like the Navy Seal Foundation to help expand opportunity for veterans in their communities.
ESG funds give investors the opportunity to spend capital in ways that add genuinely value for tenants, communities, and the environment and also produce good returns.
Strong returns can and do go hand-in-hand with positive impact. Impact-focused strategies frequently produce better returns than their non-impact oriented counterparts.
Birgo’s experiences and actions confirmed real estate investing can be a potent force for good in our communities and our world.
Fund managers and property management companies have a responsibility to investors, tenants and communities. They are committed to producing solid returns for investors, treating tenants with dignity and respect, and making the community as a whole a wonderful place to live.
For investors, the opportunity to invest in ESG REITs is another great way to secure your financial future while also giving back to the community.