In 2023, ESG investing is becoming increasingly important in the real estate industry, as investors recognize the potential benefits of investing in sustainable, socially responsible properties.
By P K Mishra
Over the years, on the back of increased infrastructural development taking place across the country, acute climate and environmental crisis has followed. This has caused a paradigm shift in how we look at the importance of ESG. What was once a mere catch-phrase is now a significant factor today in a company’s overall business approach across sectors and industries. The seriousness of implementation of ESG is irrefutable in the times we live in where the world is walking a fine line between industrial expansion and disquieting climate conditions. Environmental, social, and governance (ESG) consideration is therefore, rapidly gaining importance across all sectors, including real estate.
In 2023, ESG investing is becoming increasingly important in the real estate industry, as investors recognize the potential benefits of investing in sustainable, socially responsible properties. Firstly, the real estate industry contributes significantly to global greenhouse gas emissions. Buildings consume approximately 40% of global energy and emit 33% of greenhouse gas emissions. As a result, investing in sustainable real estate companies can play a crucial role in reducing emissions and mitigating climate change. ESG investing in real estate can assist investors in identifying companies dedicated to sustainable building practises, energy efficiency, and lowering their carbon footprint.
And, according to research, companies that prioritise ESG factors have better long-term financial performance and are more resilient during market volatility. Companies that prioritise sustainability in the real estate industry may benefit from lower operating costs, increased tenant retention, and higher property values. Furthermore, businesses that promote social factors like affordable housing and community development may benefit from increased demand for their properties.
Green buildings creating a demand –
Investors are increasingly interested in companies and funds that incorporate ESG factors into their investment decisions. As more investors recognise the long-term benefits of ESG investing, such as improved risk management, enhanced reputation, and increased shareholder value, this demand is expected to rise.
The shape of the real estate industry of a country is said to be a litmus test for its economic and social health. The sector has a significant social influence on the local communities and at a time when India has surpassed China to be the world’s most populated country, the expansion and development requirements to cater to ‘all’ are humongous. Real estate companies are recognising their social responsibility to promote sustainable practises and reduce their environmental impact. This includes lowering carbon emissions, increasing energy efficiency, and promoting environmentally friendly transportation. McKinsey found that nearly 1.6 billion people could be impacted by global housing shortages by 2025, rising to 1.7 billion by 2030 and 1.8 billion by 2035. A dearth of quality and affordable housing is a global cause of concern. However, the allocation of an increased budget towards the ‘housing for all’ initiative by the government is a push in the same direction and underlines the intent of ESG implementation.
Government Initiatives- A push for green growth
The third pillar of sustainability in real estate is governance. This component is concerned with the openness and responsibility of real estate investors and developers. Building trust and confidence among stakeholders, including investors, renters, and local communities, depends on good governance processes. Accountability for achieving sustainability goals and generating social impact, as well as transparency in project design, finance, and operations, are crucial.
The government of India has also acknowledged the significance of ESG in real estate which is evident from the push towards green growth in this year’s Union budget. The Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation are two programmes that the Ministry of Housing and Urban Affairs has created to encourage sustainable urban development (AMRUT).
Through the PPP Model: The government has implemented it to encourage private sector participation in sustainable real estate projects. The government provides land and infrastructure support under this model, while the private sector develops and manages the project. Additionally, through the National Clean Energy Fund (NCEF), the government provides funding for renewable energy and energy efficiency projects, including those related to sustainable real estate.
Conclusion
To reap the benefits of ESG investing in real estate, investors should seek out firms that prioritise environmental sustainability, social responsibility, and good governance. Investing in companies that prioritise energy-efficient buildings, affordable housing, and diversity and inclusion in hiring and management practises is one example.
With an increasing penchant for environment friendly buildings amongst people, the importance of ESG in real estate is only set to see an upward trajectory in the years to come. The increasing awareness amongst stakeholders keeps real estate developers in check to use more sustainable and socially conscious practices. The real estate sector must therefore adapt to these changing expectations and prioritize ESG considerations in all aspects of operations. The adoption of ESG considerations goes hand in hand with the rate of success of real estate projects in India. As the real estate sector is a noteworthy contributor to the Indian economy, it must embrace all possible sustainable practices to build a greener future.
Authored by
(P K Mishra, VP – Planning & Procurement, Sattva Group)
