Increasing Importance of ESG Investment Strategies

Updated: Jan 15

Real estate investors across the board are showing more interest in sustainable platforms. ESG may not yet be in our everyday vocabulary when it comes to real estate, but the same focus on environmental, social and governance issues that is gaining traction among institutional investors is starting to resonate with HNWIs, family offices, and other investors as well.


Investors increasingly seek opportunities that have a decreased footprint and more of a conscious approach to ESG best practices. E³SG Realty Investments is creating a whole new real estate category to help investors meet these objectives, we are making a significant move from just checking boxes to active focus on and analysis of real sustainable assets. This will soon be a must have for all thoughtful investment portfolios, whether baby boomers or Gen Z.


The growing appetite for ESG-friendly investments is sparking a shift among sponsors that ranges from greater emphasis on disclosing ESG policies and practices to dedicated sustainable and impact funds such as Capital Innovations’ Sustainable Real Assets Interval Fund launching in June 2021. 70 percent of this fund is expected to be invested in private market real estate, infrastructure, and natural resources – and has set a target return in the mid-teens. Specific to real estate, the fund will target investments such as green buildings, affordable housing, urban housing, and other real estate projects that focus on reducing carbon emissions, energy, and water consumption.


A second great example is the $1 billion minority-led Black Impact Fund newly launched by Los Angeles-based SoLa Impact. Another of its socially driven real estate funds, 13 percent of fees and asset appreciation will be earmarked for the affiliated non-profit Black Impact Community Fund. In addition, the community fund will team up with faith-based organizations, local governments agencies, and non-profits to use surplus land and underused lots for affordable housing or related projects.


Investors are increasingly showing interest in sustainable platforms. They have many and varied investment choices, and are becoming more and more selective in screening and evaluating ESG credential and criteria. This is especially true of High-Net-Worth Individuals, whose interest is rapidly accelerating.


Through the E³SG Realty Investments scoring platform, investors can accomplish almost all of their qualitative and quantitative due diligence with respect to (at a minimum):


· Practices, policies, and results across the ESG spectrum

· LEED certifications and EnergyStar ratings

· Manager efforts to reduce carbon footprints and optimize energy efficiency

· Hiring and diversification practices and community involvement

· Good governance


That said, despite a growing number of dedicated funds, pure sustainable and impact funds are likely to remain a relatively small niche within the real estate industry – at least in the near term. As a result, the E³SG Realty Investments fund series has a performance window opportunity with limited competition amidst growing interest and what is quickly becoming table stakes among investment platforms. Having created an asset class rather than a mindset, or a framework, our funds are easy to understand and easy to underwrite, investors have confidence they are hitting their ESG targets, and are also earning strong financial returns.

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