Environmental, Social, and Governance (ESG) factors have evolved into a pivotal framework for evaluating Commercial Real Estate (CRE) portfolios. In CBRE’s 2022 U.S. Investor Intentions Survey, 70% of respondents have already incorporated ESG criteria, with an additional 10% planning to follow suit in the next three to five years—an impressive leap from the 56% reported in 2021.
The surge in ESG adoption can be attributed to the growing emphasis on sustainability among investors, property stakeholders, and tenants, catalyzed by the pandemic, natural disasters, and social justice issues. This momentum is projected to persist, driving value for real estate investors.
Defining ESG in Commercial Real Estate
ESG encapsulates three sustainability dimensions—Environmental, Social, and Governance. In a rapidly changing world, applying ESG criteria empowers investors to create sustainable long-term value:
- Environmental Factors: Address a property’s carbon footprint, water usage, and climate-related risk preparedness.
- Social Considerations: Focus on relationship management, stakeholder value creation, and initiatives like urban revitalization and community infrastructure support.
- Governance Criteria: Reflect a company’s philosophies, including board composition, Diversity, Equity, and Inclusion (DEI) policies, transparency practices, and business ethics.
Benefits of ESG Strategies
ESG strategies drive positive changes in carbon reduction, energy consumption, and overall health and wellness. These practices yield tangible benefits, such as:
- Operating cost reduction
- Tenant attraction and retention
- Increased property values
- Public Image
Furthermore, ESG strategies mitigate physical, regulatory, and economic risks, promoting sustainability and resilience in the face of climate change.
The Appeal of ESG-Related Tax Incentives
ESG practices offer avenues to reduce tax liabilities through rebates, credits, and discounts. The Inflation Reduction Act of August 2022 expanded tax incentives for energy-efficient improvements. Notable renewable energy tax credits include:
- Renewable Electricity Production Tax Credit (PTC): Up to 2.6 cents per kWh for specific renewable energy projects.
- Commercial Buildings Energy-Efficiency Tax Deduction: Up to $5 per sq. ft. for energy-efficient commercial buildings/
- Investment Tax Credit (ITC): 30% tax credit for designated renewable energy equipment.
Beyond environmental incentives, tax programs linked to social and governance efforts are available, such as the Historic Tax Credit (HTC), supporting community revitalization.
In CBRE’s 2022 survey, 85% of investors prioritize environmental protection in their ESG criteria, emphasizing the need to safeguard real estate assets.
In Conclusion
ESG considerations play a major role in valuation, operating costs and risk management for Commercial Real Estate investments of all types.
Contact Gary Gillis at www.beacontron.com sales@beacontron.com 289-635-3164 for more information and advice.
Please Like and Repost if you found this helpful.
Subscribe to our blog at beacontron.com/blog for more information.
Beacontron is a Global Leader in Solar Energy Products, Services, and Financing as well as ESG and Carbon Pricing Management.