Societal challenges laid bare during the pandemic and rising concerns over climate change are spurring interest in ESG investing within the residential real estate sector. But high-resolution property intelligence will be key to success.
Short for Environmental, Social, and Governance, ESG investment strategies prioritize companies, funds, and other financial instruments that support and encourage ecological sustainability and social responsibility. As of September, global assets in ESG funds, for instance, topped $1.6 trillion.
For corporations, institutional investors, and private stakeholders, interest in ESG reflects an acknowledgement that today’s greatest challenges aren’t going to solve themselves. Well, that and the realization that collective action to make the world a better place can also be good for the bottom line.
As its moniker suggests, ESG investments are evaluated using three main criteria:
Environment: How does this company or investment reduce carbon emissions, toxic chemicals, or other pollutants in its operations and its products? How does it support sustainability?
Social: How does this company or investment address racial, gender, or LGBTQ+ inequality within its operations or society as a whole?
Governance: How does this company or investment drive positive change in executive pay, diverse workforces, and responsiveness to shareholders?
But as Barron’s reports, reliable metrics are needed to prevent ESG investing from stalling out. In residential real estate, measuring against ESG criteria can seem daunting. But it can also pay big dividends.
ESG & RE: At Home with a Sustainable Future
According to Forbes, the built environment is now responsible for 40% of greenhouse gas emissions worldwide. So the growing importance of ESG throughout the real estate ecosystem shouldn’t be that surprising.
Today, corporate tenants and Millennial residents are highly interested in carbon neutrality and sustainability features such as solar power, smart home monitoring and controls, and climate-friendly landscaping. And property investors, operators, and REITs understand that properties achieving ESG thresholds can attract lower-cost financing, premium rents, and rising efficiencies while preserving the value of assets.
Meanwhile, long-term investors and pension funds are interested in investments that mitigate the threats to the global economy posed by climate change. And state governments seeking to address those dangers are incentivizing real estate stakeholders to embrace ESG. But how do you measure effectiveness?
In commercial and multi-family residential, measuring carbon emissions, tenant demographics, and workforce diversity is a relatively straightforward proposition. The same is true for large-scale commercial and residential builders and build-to-rent companies erecting housing developments from scratch.
But what about existing inventories of single-family homes? How do traders, institutional and SFR investors, lenders, and others identify and profit from properties that support ESG?
Property Intelligence: The Data to Quantify ESG
For investors and traders competing for thousands of homes or mortgages at a time, the ability to make fast, accurate financial decisions is critical to success—especially if ESG is factored into the equation. Access to high-quality property intelligence is key.
Often available via API, today’s most valuable property intelligence provides up-to-date analysis of factors impacting risk, valuation, or other criteria for any home, or multiple homes, in seconds.
CAPE’s own solution, for instance, leverages high-resolution geospatial imagery and computer vision to instantly deliver current and precise data on property condition for any of more than 100 million structures nationwide. This includes roof type and condition, landscaping, swimming pools, the presence of solar panels, and other details that increase the accuracy of risk, valuation, and sustainability models so investors can zero in on the best opportunities.
The same property intelligence can be used by organizations targeting social equity to identify properties where housing availability can be increased through the addition of adult dwelling units (ADUs), or low-income areas or mortgage pools where programs can be created to help finance rehabilitations for properties in poor condition.
In fact, there’s property intelligence available for just about any measure used to evaluate residential real estate acquisitions or divestitures today. That includes everything from walkable distance to public transit, which can command a 40% to 200% price premium, to anonymized demographic data to inform social equity-based investment decisions. And what’s not to love about that?
To learn how CAPE Analytics can help you achieve ESG investing goals that help grow your business, request a demo today.