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Jonas Nielsen @ Legacy
November 3, 2022
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10 reasons to invest in sustainability - The 10Rs

It is not too much to say that the threat of climate change is obvious, as we struggle to keep track of what is happening with rising temperatures and lack of resources. Therefore, there is no better time than now to invest in green solutions. Certainly, we all have a responsibility to protect our planet, but what are the investment opportunities?

For inspiration, we have compiled 10 reasons, from the book Thriving: The Breakthrough Movement to Regenerate Nature, Society, and the Economy*, that illustrate why it would be wise to prioritize sustainability in your investment plan:

#1: Reputation

Reputation improves, driving brand enhancement and attraction to new and existing customer groups.

It is becoming increasingly clear that we must act on all fronts if we are to secure a habitable planet for ourselves and our children. As a result, consumers and businesses are increasingly looking to partner and connect with people, brands and companies that are making a difference. The new generation of decision makers will be reluctant to do business with companies that do not invest in sustainability.

#2: Revenues

Enhanced customer loyalty, lower customer churn, greater ability to enter new markets and access new sources of revenue.

In the real estate market, revenues are most overtly affected in commercial real estate, where rent levels and vacancy rates are influenced by the ability to contribute to the tenant's net zero strategy. The customers with the highest willingness to pay a high rent often also have the highest expectations for sustainability and are required to report on it. If you cannot serve these types of tenants, it will impact rent levels and possibly even vacancy rates.

#3: Resource efficiency

More efficient use of resources, leading to lower costs e.g. through less water, energy and waste.

In the real estate industry, investors and owners are increasingly faced with the requirement to report on their carbon emissions and create a plan to reduce those emissions. Reporting and planning means they become aware of the drivers and contributors to their emissions and have a growing incentive to act to reduce consumption. This in turn leads to more efficiently operated buildings.

#4: Research and development

Research and development are stimulated, especially since thriving opportunities require innovation to deliver.

In the words of Charles Dickens, the current situation for real estate investors can be described as "the best of times, the worst of times." Times of crisis are tough, but they are also times of inspiration and development. The real estate sector is responsible for 40% of all carbon emissions in Europe and therefore needs to evolve. And it will. Already, those at the forefront are benefiting greatly from the implementation of new solutions to solve emissions problems. We predict that the return differentials between the most innovative and fastest players in the real estate sector and the rest will be much greater in the future.

#5: Reason for being

Reason for being is clarified, driving purpose, brand strength and cultural benefits.

A company's vision and goals should enable both customers and employees to understand at a high level what the company stands for and where it is going. Vision and goals that relate to sustainability generally indicate a greater sense of purpose and "good" intentions on the part of the company. More purposeful companies are likely to be well regarded by the market in general, customers and employees, and should therefore enjoy greater brand strength. In addition, a clear and purposeful vision or set of goals not only causes employees to align with a common direction and objectives, but also strengthens their sense of belonging and connection to the company and its culture. Quite simply, in today's world, people do not just want to do well, they want to do good.

#6: Recruitment and retention

Recruitment and retention of talent improves, especially attracting and retaining the younger generations.

New generations are searching for meaning and purpose. Contributing to a positive future will multiply the opportunity to attract the right talent to your organisation. In a future where competition for talent will be fierce, the ability to attract talent will impact the ability of companies to innovate, develop and grow.

#7: Resilience

Resilience is built, and an ability to anticipate and survive shocks.

Ultimately, investing in a company's ability to collect, report, and understand sustainability data is an investment in the future. Improving climate intelligence will improve resilience, which is the ability to anticipate, withstand, and adapt to the rapid change and disruption that will hit the real estate sector. In McKinsey's words, companies need to consider how they can "adopt a resilient posture, alert to what lies beyond the horizon, and ready to withstand shocks and move on to the next reality." (McKinsey, June 2022). At a time when climate, energy, and economic crises are occurring simultaneously, investing in sustainability intelligence offers a path to resilience.

#8: Risk

Lower market, balance sheet and operational risk, leading to greater access to capital, financing and insurance.

Reporting on carbon emissions from real estate is ultimately a risk mitigation exercise. Reporting provides an opportunity to assess both individual assets and the portfolio as a whole, and helps investors decide when and how much to invest to avoid vulnerable assets and thereby reduce risk in their portfolio. In addition, financial partners across Europe are already warning that sustainability reporting and planning is a key component to obtaining the best possible terms for investments and loans.

#9: Regulation

Regulation is anticipated, therefore allowing early adaptation and avoiding of fines and penalties.

The other side of de-risking is compliance. As the real estate sector attracts more and more legislative attention, compliance becomes increasingly important to protect investment value.

#10: Returns

Returns are higher, with better access to finance and better long-term financial performance.

Sustainability is a business opportunity that no one in the real estate industry can afford to miss. Already, issuance data is becoming increasingly important in real estate mergers and acquisitions, and we predict that assets without high-quality, verifiable issuance data will soon be of no interest to the major institutional players, significantly reducing market value.

In addition, as we have seen above, investment in sustainability on all fronts will drive up rents, reduce vacancy rates and secure the best possible financing terms, which will also impact valuations and returns.

Conclusion:

The above list provides insights and suggestions on why you should consider investing in sustainability. At Legacy, we work hard to help property owners stay on top of their portfolio's performance so they can make smart decisions to reduce carbon emissions.

Our goal is unequivocal: great people securing our planet's future.

Want to learn more about Legacy's automated carbon accounting platform? Visit our product page, or get in touch with us for an introduction.

*Source: Inspiration from Wayne Visser, published by Society and the Economy (2022), British Investment International.

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