The ESG (environmental, social, and governance) agenda was already here pre-COVID, what the COVID situation has done is apply pressure to the ESG accelerator pedal. It is highly likely the ESG regulatory burden will increase going forward and at a greater speed than anticipated.
What does this mean for real estate investors? It means firstly, when acquiring an asset, carrying out due diligence as to the potential ESG related risks that exist and costing those risks (are those costs factored into the purchase price being paid?) and secondly, in relation to an owned asset an assessment needs to be carried out as to what improvements need to be invested in and the owner to make a decision whether to hold and do nothing, invest or dispose.
Who knows what exactly will happen in the years to come however it is my view that the potential costs of doing nothing or not taking ESG due diligence seriously may have an increasingly materially adverse impact on real estate exit values.
The more forward-thinking investors are already making decisions on the impact of climate change over the next 10 years. They know that the speed of change could impact their next investment cycle. If you don’t factor it in now you might well acquire assets with higher costs than you can afford and a lower exit price.”