Three letters are changing how today’s investors view their capital opportunities—ESG. A fresh range of more socially conscious investment options, whether in real estate or other realms, has the potential to benefit the larger community while expanding investors’ portfolios.
The developing world of ESG investment (which stands for environmental, social, and governance) demands analysis not only of risk and growth potential, but also ecological or societal impact. The concept allows for material gain as with any other bankable arrangement, while offering a chance to benefit the community beyond accounting.
Jon Hale, Ph.D. and CFA, is head of sustainability research for the Americas at Morningstar. When using the term ESG, he’s referring to investments in public markets, such as stocks and bonds, often invested via mutual funds and ETFs. In the real estate class, most ESG investment options involve sustainability or affordable housing.
“Real estate investment trusts [REITs] are companies holding portfolios of buildings that are publicly traded, like stocks,” Hale says. “So, yes—there are real estate funds that focus on REITs that have green attributes. Also, sustainable funds in the U.S. often seek out affordable-housing bonds that finance those projects, or those backed by mortgages on affordable homes.”
Hale stresses that anyone with money to grow can add a sustainability lens to their investments.
When it comes to real estate, new-home buyers can make their property purchase or development selections based on their environmental concerns. Kevin McDonald, sales associate, Sotheby’s International Realty-Wine Country Brokerage, represents buyers and sellers in northern Sonoma and southern Mendocino counties, and finds ESG-aware buyers bringing their environmental preferences to the buying or construction processes.
“They want to know what impact a property has on the land and resources,” McDonald says. “Does the home have sustainable features? Is it on or off the grid? What’s the solar-power capability?”