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Social investments land on commercial real estate

| Apr 9, 2021 | Commercial Real Estate

Real estate investors and owners had to become more accountable in many ways since the beginning of the pandemic last year. In addition to being responsible investments and having long-term value, there is also a growing demand that commercial real estate become effective environmental, social and governance investments.

Growing ESG investment

Climate change awareness has grown since the beginning of 2019. Major investors also announced that ESG will be an important component of new investment assessments. Companies with strong ESG beliefs, according to data, outperformed more conventional companies in stock performance during the first quarter of 2020 even when the markets dropped during the pandemic.

In New York City, Law 97 will require buildings that are at least 25,000 square feet to reduce their carbon emissions by 40 percent by 2030 and by 80 percent by 2050. There may be a new federal climate plan that will require reductions in building carbon emissions.

Executive participation

Traditionally, sustainability in commercial real estate was more of an ideal than a requirement affecting revenue or other financial goals. But executives are now being held accountable for their companies’ ESG’s impact and their compensation is linked with meeting ESG goals.

Companies are being advised to consider the skills and expertise of their executives in ESG and other related positions. Environmental goals require different strategies, knowledge, and experience than, for example, social goals.

Data supported strategies

Proof instead of publicity is required to demonstrate ESG compliance and impact. This is more difficult in the complicated real estate climate during the pandemic.

Data-backed investments for ESG and other activities are required to satisfy investors. Artificial intelligence and machine learning technology has redefined measurement and reporting for important sustainability initiatives.

ESG is staying

Tenants will also require proof of ESG impact. Employers are looking for sustainable and climate-friendly workplaces to meet their employees’ demands.

Using ESG to increase a building’s energy usage will directly affect overall net operating income and increase its value when it is sold. ESP is anticipated to attract investors and will be a qualifier for investors seeking investment opportunities.

Attorneys can help assure that real estate transactions comply with these and other legal requirements. Lawyers can also assist with fashioning deals that meet ESG and other business and personal goals.

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