According to a new report released by Cushman & Wakefield, almost 60% of global investors attest to the fact that ESG-led investment strategies deliver higher performance yields. This trend demonstrates a greater awareness of the financial investment required for sustainability and a greater willingness among investors to pay higher fees for funds with an ESG focus.
Booming Institutional Investment
Indeed, the latest Sustainability Megatrends Report documents a seismic rise in institutional investment in ESG. A study on 250 institutional investors showed higher returns when ESG was considered, and 78% are willing to pay premium fees for these funds. This demand amid a shift in capital-allocation strategies is being poured into companies that have strong ESG performance. “There is growing demand among institutional investors for properties demonstrating strong ESG-related management and activities,” said a report, pointing to a shift in investment priorities.
New Standards in Building Performance
The other trend is about new Building Performance Standards, which point to a new level of energy efficiency and sustainability in the real estate sector. The standards are to achieve cleaner buildings with decreased impact on the environment: less energy consumption, less carbon emissions, and generally improved performance. As more governments join those with BPS, companies will need to change their infrastructure to meet the standards or face penalties. In 2022, the property sector held over 8% of the sustainable finance market and has demonstrated greater and greater integrated activity in the move toward sustainability.
Mandatory ESG Reporting is on an Upward Trend
With a higher mandate for ESG reporting in place around the globe, perhaps it is about time for companies to report their environmental and social impact metrics. The force behind this greater mandate lies in the increased call by governments and all regulating agencies to up transparency and ensure companies stand accountable for their efforts in ensuring sustainability. Companies that have integrated mandatory ESG reporting into their strategy develop resilience and can seize opportunities. “Companies that build this mandatory ESG disclosure into their strategy will be better placed to manage risks and capture new opportunities,” the report states.
Decarbonization and Energy Transition
The current transition toward a low-carbon economy is driving significant change across many industries. Firms have heavily invested in the development of renewable sources of energy, decarbonization strategies to cut carbon emissions, and long-term pathways toward sustainability, especially in manufacturing, energy, and transport—the main sectors where emission reduction has a significant impact on climate change. “Decarbonization is no longer a choice; it’s a necessity for businesses aiming to stay competitive in a changing world,” the report says.
Green Leasing and Digital Transformation
Green leasing is becoming a strategic tool for aligning the goals of landlords and tenants on sustainability. Green leases incorporate clauses to require the tenants to meet the ESG criteria, so setting such initiatives and working toward sustainability means a more collaborative process. Equally important, digital transformation is related to the forefront in driving ESG goals. Companies are using technologies like IoT, AI, and analytics to be able to monitor and improve their sustainability performance. “Digital technologies are enabling data analytics for companies to take quantifiable ESG outcomes,” the report emphasizes.
Climate Risk Assessment
The report further goes on to outline the assessing and mitigating of climate risk. As disasters increase due to the climate, companies are now active with plans outlining the risks emanating from extreme weather events and rising sea levels. The report concludes that “assessing and mitigating climate risk is essential for long-term resilience.” For companies that take no action, the risks that come their way are both operational and financial.
Looking Ahead
These megatrends underline the increasing importance of ESG integration by companies in all sectors to reduce risk and leverage opportunities with sustainability. In other words, by aligning with these trends, a company stands to benefit in response to the expectations of 88% of surveyed investors that asset managers will enhance their ESG programs proactively. “The future of corporate growth will henceforth belong to companies that can not only talk the ESG talk but also walk in substantial, measurable strides,” the report concludes. As ESG shapes up to be central to the corporate arena, the time for action is now.