The idea of sustainable real estate is not a novel concept, but it is gaining in popularity. It has been estimated that real estate development and operations use about 40% of all energy in the US, a significant statistic. The aim of sustainability planning is to decrease that energy demand – in other words, promote economic development without compromising the quality of the environment for future generations. Sustainability rating systems and accreditations have been encouraging more efficient development for decades. Now financial investors are getting in on the effort.
A recent New York Times article reported on new standards and technology that enable investors to track the carbon footprint of developments.
Common aspects of sustainable development include improving the quality of occupants’ lives – for instance pedestrian amenities and mass transportation – and minimizing the depletion of natural resources by using alternative energy and water sources. As these practices become more prevalent in project design, which is seen as an indicator of corporate responsibility, they are also generating interest on the financing side of those projects. Investors are tending to prefer higher performing, more resilient sustainable/green assets.
Calculation of greenhouse gas emissions and the focus on carbon are affecting investment priorities. Developers are seeing a significant preference for capital investments that focus on environmental and social aspects of development.
New measurement tools and standards are enabling investors to expect better tracking of environmental performance and metrics, including development excellence, operational quality and the overall carbon picture. That may include financial disclosures from publicly traded companies regarding climate risk, so investors can be guided toward more resilient assets.
According to the NYT article, mutual funds and exchange-traded funds invested nearly $300 billion in sustainable assets globally in 2020, nearly double that of 2019. Investment management companies Invesco and Foresight, for instance, both have exchange-traded funds for green buildings that report respectable levels of return.
Whereas investment firms once had to compromise return on investment for sustainability, now sustainability generates higher returns. In fact, the attitude is developing that it is considered a risk to not invest in new sustainable development. Choosing sustainable investments not only vets less desirable assets but also makes investors more attracted to better ones. In this business climate, not investing with sustainability in mind could result in faster depreciation of assets and higher costs in the project’s long term.
Big financial players are showing a preference for more transparency and risk assessments in investment standards, with a focus on sustainability. In fact, the NYT report stated the Securities and Exchange Commission may mandate environmental disclosures for public companies. Private equity firms are also encouraging more disclosure of climate and corporate environmental risks. Environmental performance can even be linked to lower interest rates from some lenders.
Investment companies are venturing that sustainable development leads to more valuable assets, which attract better tenants at higher rent levels, thus attracting more investors.
Let us know what sustainability looks like on your projects. Applied Software can help your company on its path to sustainability, with a variety of architectural, engineering, construction, and manufacturing software tools and services.