ESG In Real Estate: How The Environment Is Impacting Decision-Making

FullnameofESG:Environmental,Social,andCorporateGovernance(ESG)isthe acronymforESG.CompaniesthatuseESGarecompelledtoconsiderethical practices,socialresponsibility,andenvironmentallyfriendlypracticeswhenputting anyproceduresorprocessesinplace.Wequicklyandnoticeablychangedtheway wework,live,communicate,&investaftertheCOVID-19epidemic.Therefore,itis vitalandnecessarytobridgethegapsfoundinourdiverseecosystems,from infrastructuretohealthcare.

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Climatechangeandpandemic-relateddisruptiondroveinvestorstoactively incorporateenvironmental,social,andgovernance(ESG)factorsintotheir investmentdecisions,hence2020wasunavoidablyaturningpointintheadoption ofESGfactorsintangibleassets,suchasinfrastructure&realestate.Additionally, theongoingoccurrenceofextremeweatherphenomenainIndiaandaroundthe world,suchastorrentialrain&floodingorpreviouslyunheard-ofheatwaves,has elevatedthesignificanceoftakingenvironmentalissuesintoaccountduringall decision-makingprocesses.

By2025,theanticipatedvalueofESGassetsispredictedtobeUSD53trillion,or overone-thirdoftheestimatedUSD140.5trillionintotalassetsundermanagement (AUM).Unavoidably,thisshiftinperspectiveisbringingforthimportantnewtrends andchanginghowrealestateisdevelopedandfinancedinIndia.

ESG Integration in Investments in Infrastructure

ItisimpossibletooverestimatethesignificanceofESGintegrationininfrastructure projects.Itiscriticaltoevaluatethepotentialenvironmentalimpactsofprojectson factorslikebiodiversity,resourceuse,andperhapsenergytransitionbefore investing.Duetothepresenceofinfrastructurewithincommunities,the managementofsocialconcernsisanothervitaldifferentiatorforthedevelopment andassetmanagementofsuchprojects.FactorslikeHealth,Safety&Environment (HSE),CommunityEngagement,aswellastheImplementationofDiversity,Equity, &InclusionInitiativesPlayaSignificantRoleinInfrastructureAssetManagement fromTheviewpointofriskmitigationandtheseprojects'abilitytoproducesuperior risk-adjustedreturns.

Developers' Attitudes Towards ESG Are Changing:

ESGnolongerhasthesamevaluethatitpreviouslydidintheperspectiveof developers.AsmoreinvestorsshowinterestinportfoliosthatincorporateESG elements,future-readydevelopersinIndiaareplacingagreateremphasisonESG compliance.Additionally,developersareaimingtomaketheswitchtoazero-carbon economyinordertoadheretoworldwidebestpracticesforclimatechange. Accordingtoapoll,demandforjobsinIndia'sESGsectorsurgedbyover468% betweenApril2019andApril2022,indicatingthatmorecompaniesaretakingthis issueseriously.

An increase of green buildings

Worldwide,nationshavemadecommitmentstoachievecarbonneutralitywithin thenextfewdecades.Therealestateindustryisessentialtothegrowthofgreen buildings.Withanemphasisonresourceefficiency,wastemanagement,and constrainedenergyusage,facilitieswithlowcarbonemissionsarebeingbuilt throughthedeploymentoftechnology.

Additionally,thecarbonfootprintofthesectorisdecreasedviamoreefficientand intelligentbuildings.Safetyissuesforbothemployeesandtheenvironmentare crucialinglobalinfrastructure.Indiawasrankedthirdintheworldforhavingover 2.8milliongrosssquaremetresof146certifiedstructuresandspaces.

Regulatory Objective:

DespitethefactthatmanydevelopersareswitchingtoESG,regulatorypressurehas beenimportantinthissector.Whilepressinglaggardstokeepupwiththereforms, theBudgetandIndia'semphasisonreachingnet-zerocarbonemissionsby2070 ensurepolicysupportforenvironmentallyfriendlyinvesting&infrastructure developmentthatcomplieswithESGrequirements.Inreality,startinginFY2022–23,reportinginaccordancewiththenewBusinessResponsibilityandSustainability Reportingcriteriawillbenecessaryforthetop1,000listedcompaniesbymarket capitalization.

Inordertoboostgreenfinanceandlowerthefinancialrisksrelatedtoclimate change,theRBIisalsopredictedtoshortlycreateregulationsforregulated enterprises.

Conclusion- ESG in Real Estate

Withoutadoubt,asthecountryandtherestoftheglobeworktowardsasustainable future,ESGininfrastructure&realestateispoisedtobecomethenormratherthan theexception.TheauthorisSeniorVicePresidentofNAREDCO-Maharashtraand ViceChairpersonoftheNaharGroup.

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