The case for ESG in Real Estate Debt

Over the preceding decades, ESG has morphed from a niche add-on to a core part of any sensible investing strategy. Indeed, Standard Chartered estimates that $1 in every $4 is now invested in ESG. As ESG increasingly factors into investment decisions across the market, the case for real estate debt to consider ESG risk grows.

And it is easy to see why. ESG risks consistently feature in the World Economic Forum’s annual Global Risk Reports. For 2021, climate action failure and human-led environmental damage were among both the highest likelihood and highest impact risks of the next decade.

It is widely accepted that the next 10 years are crucial for tackling the climate crisis. Despite a temporary drop in GHG emissions resulting from the coronavirus pandemic, overall trends are that they continue to rise. With the race to net zero carbon one of the major global challenges facing the built environment, and one which is being targeted by corporates and governments alike, paying attention to ESG issues in real estate investing strategies has never been so critical.

The possibility of being left with stranded assets due to investment strategies being out of sync with emissions trajectories is fast becoming a reality. As we see regulations tighten, for example, minimum energy efficiency criteria for buildings, the reality is that these types of risks must be taken into consideration. Securing financing against an asset that could be unlettable in just a few years is not an attractive offer. As such, across the commercial real estate financial market, there is increasing pressure to disclose and mitigate ESG risk. And this extends to real estate debt.

Globally, green bonds and loans along with other types of sustainable debt rose to $465 billion in 2019 – an increase of 78% from 2018 (data compiled by BloombergNEF). These figures demonstrate that ESG is fast becoming a material consideration in debt financing. At EVORA we see this trend continuing, with the pandemic only heightening tenant and consumer expectations that the spaces they occupy positively impact on social and environmental considerations.

Sustainable real estate debt financing has grown rapidly over the last decade as alternative lending is increasingly sought. We see the momentum in this space continuing, and as the opportunities in this area continue to grow, early and effective ESG integration will be key.

EVORA works with clients helping them to develop ESG strategies and green debt frameworks, if you would like to discuss this you can contact us at contactus@evoraglobal.com

EVORA Global becomes PRI Signatory

EVORA Global has become a signatory to the United Nations Principles of Responsible Investment (PRI), underlining our commitment to advancing the evolution and adoption of real asset sustainability, and building a globally responsible investment community with ESG at its core.

The PRI works to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

The principles were developed by investors, for investors and by implementing them, signatories contribute to developing a more sustainable global financial system. 

Principle 1: to incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: to be active owners and incorporate ESG issues into our Group’s ownership policies and practices.
Principle 3: to seek appropriate disclosure on ESG issues by the entities through which our Group invests.
Principle 4: to promote acceptance and implementation of the Principles within the investment industry.
Principle 5: to work together to enhance effectiveness in implementing the Principles and
Principle 6: to report on activities and progress towards implementing the Principles.

Rahul Gautam, EVORA’s Strategy Manager said:

As a business EVORA Global is committed to Principles of Responsible Investment, and as a service provider, we actively support and endorse PRI among our clients. Regulations, reporting frameworks, and the industry as a whole are witnessing a shift in investment philosophies. We believe the ESG investment approach is on the rise (for all the right reasons), and institutions like PRI supports the acceleration and adoption of a sustainable ecosystem.”

EVORA has deep experience in both creating robust Responsible Investment strategies and frameworks as well as on the ground expertise in the implementation of these, and reporting on their results.

We are already working with many leading investment firms across a wide of sectors, including private equity, institutional investors and fund-of-fund managers. Our PRI and GRESB reporting services, underpinned by our in-house software solution SIERA, provide best-in-class solutions across the property and infrastructure life cycles which focus on driving value from demonstrable ESG performance.

Find out more here: PRI Reporting