Is ESG In Real Estate Upside Down?

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With almost 75% of investors integrating environmental, social and governance (ESG) factors into their strategies, sustainability is moving from the nice-to-have list to the must-have one. 

ESG Is Suddenly, Big

Sample this. The real estate and construction industry is responsible for 30% of all carbon emissions and 40% of global energy use. 

And with that discussion spanning an entire day at the United Nations climate change meet, decarbonization has become the sector's top priority. 

Real Estate's Race To Net Zero

Today, when an occupier scouts for a space to rent, it’s likely to favour one with the highest ESG rating. While no one expects the real estate sector to dump bad practices overnight, change - fuelled by capital markets, investors, occupiers and regulators - is well underway. 

But to enable that change on a global scale, ESG benchmarking is critical.

The Way The Cookie Crumbles

😳 A recent Bloomberg investigation revealed that MSCI, the world’s leading ESG rating company, doesn’t actually measure a company’s impact on the planet. Instead, its upside-down ratings “gauge the opposite: the potential impact of the world on the company and its shareholders.” 

“As long as regulations aimed at mitigating climate change pose no threat to the company’s bottom line, MSCI deems emissions irrelevant,” Bloomberg published, without any resistance from the number crunchers who dish out these ESG reports. 

Ignorance Is Profitable

🎙 On the side lines of the U.N. conference, MSCI CEO Henry Fernandez told Bloomberg that retail investors are not aware of how the rating was designed, and that even “Many portfolio managers don’t totally grasp that. Remember, they get paid. They’re fiduciaries, you know. They’re not as concerned about the risk to the world.”