Understanding and in-depth analysis of the companies in which they invest is one of the main factors driving to investment professionals to examine Environmental, Social and Governance (ESG) issues as part of their financial audit.
Today we can get direct answers to some of the most frequently asked questions about ESG criteria and its role in the investment process in the real estate market, by Domenico Amicuzi real estate manager with proven experience and who agreed to participate in the activities of Time Business News for a short interview.
Very well, we are ready with the first question. But before that, thank you for agreeing the interview and welcome. Let’s begin with the fundamentals.
Is the importance of incorporating Environmental, Social and Governance (ESG) issues into financial analysis to better understand the companies they invest in one of the main factors that motivate real estate investment professionals to do so?
First of all, thank you to Time Business News for the opportunity. It was a great joy to accept your invitation. Returning to your question, ESG is not a new concept. Investment in socially responsible securities can be traced back hundreds of years, probably as far back as the 18th century.
To return to our times, since the sixties, it has begun to turn into a customary custom, with investors who have banned participations in entire sectors such as the production of cigarettes or political endorsements such as opposition to the civil rights movement.
Today, real estate has an important role to play in achieving Environmental, Social and Governance (ESG) objectives, such as climate-proof and affordable housing.
Many of today’s ESG practices are data-driven, especially in the fields of social and environmental responsibility. Data collection and analysis are fundamental not only for comparative analysis, but also for a strategic vision to reduce consumption and CO2 emissions.
Clearly, ESG investing is on the rise at this point. Investors and asset managers valued ESG in assets valued at close to $14 trillion in 2020, up about 40% from the previous two years. So in response to your question, it is absolutely and must be a fundamental driving force.
Why have Environmental, Social and Governance (ESG) investments become more popular and what do they mean for real estate?
Many causes, particularly the growing environmental awareness of the younger generation and the acceleration of climate change, have contributed to the emergence of ESG factors. The needs of real estate investors are not based solely on the need to comply with regulations, on the contrary, they are also motivated by predicting higher benefits.
The analysis conducted by S&P Global Market Intelligence on 26 funds traded on the stock exchange and mutual funds ESG with a managed assets of over 250 million dollars is an example of “overperformance” investment products that focus on environmental, social and governance considerations. S&P found that for the period from 5 March 2020 to 5 March 2021, 19 of the 26 ESG funds outperformed the S&P 500.
In your opinion, what is the immediate future of ESG in the real estate market?
ESG investing has become very attractive to investors, in fact, we expect the sector to peak in 2025. According to leading global investment funds, investments in the Environment, Social and Governance are expected to account for one-third of all investment assets by 2030.
And there may be more and more people trying to invest in these funds if these numbers continue to grow. Over the past few years, the real estate market has become more popular, mainly because more and more individuals have begun to consider the many opportunities offered by ESG factors.
By broadening the horizons a little, and by considering ESG from a global financial perspective, of which the real estate market is a part, he can explain to our readers why sustainability is so important in developing economies. Is an active and sustainable approach beneficial, particularly to investors in emerging markets?
In addition to having institutions and capital structures, often less developed than those of their counterparts in developed countries, emerging countries are often those where increased unsatisfied demand for a wide range of goods and services that many people in developed countries take for granted.
Consequently, I believe that the use of sustainable criteria when it comes to investing in emerging economies offers the opportunity not only to invest money in order to make more money, but also to exert a positive social influence in the long term. Over 80% of the world’s population lives in low- and middle-income countries, especially among the youngest.
If we are to achieve the desired results of the UN Sustainable Development Goals (SDGs) by 2030, an estimated $5-7 trillion in annual investments are needed of which about two thirds of this expenditure must be spent in developing countries. This estimate is from the 2014 United Nations Conference on Trade and Development (UNCTAD) Global Investment Report.