Show Me the Money

Friday, March 20th, 2015
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Now, more than ever, people want to know where their ‘stuff’ comes from, how projects are bankrolled, and where funds are invested.

The demand for transparency is sending shockwaves along entire supply chains. Selling a product – whether that’s a pair of shoes or a building – is no longer about ‘biggest, fastest, cheapest,’ but also about what is best for people and best for the planet.

In this context, environmental, social and corporate governance (ESG) has become shorthand for responsible investing.

“In a rapidly changing world, facing significant global challenges, astute investors see sustainability as a differentiator for the creation of long-term value, managing risk and benchmarking non-financial ESG metrics,” said Lend Lease’s head of sustainability – investment management, Rowan Griffin.

According to Nathan Fabian, chief executive of the Investor Group on Climate Change, investors “better understand emerging environmental and social trends,” and this is encouraging them to price sustainability issues into their calculations.

These environmental and social trends all point to sustainability becoming “business as usual’.  Harvard has identified sustainability as a “megatrend” along the lines of the industrial and IT revolutions.

The Global Reporting Initiative finds that around 40 per cent of job seekers now read a company’s sustainability report.

The Globe-scan Aspirational Index finds that more than one-third of global consumers – 2.5 billion people – are committed to responsible consumption.

And Boston College’s Center for Corporate Citizenship finds that 97 per cent of companies now allocate a discreet operating budget for corporate citizenship.

The Global Real Estate Sustainability Benchmark (GRESB), which now reports on US$2.1 trillion in value, finds that more than half of those companies surveyed include certified green buildings in their portfolios.

Ruben Langbroek, GRESB’s Head of Asia Pacific, argues that the growth of the global urban population, which will increase carbon emissions and put further strain on natural resources, are not just environmental and social concerns.

“These are material, economic issues, and that makes them relevant to investment risk and return,” he said.

“Investors’ main concern is that sustainability-related risks will damage the companies and portfolios they invest in. Shareholder value is at stake. As a result, investors are seeking standardised and verified information regarding the sustainability performance of their real estate investments.”

Tiernan O’Rourke, Stockland’s chief financial officer, agrees. Stockland released Australia’s first green bond in 2014, with proceeds to be invested in green building projects that achieve a minimum 4 Star Green Star rating.

“Debt investors now appreciate that companies with an established track record in delivering sustainability outcomes for their stakeholders can more effectively use the proceeds of funds from green bond issuances to further enhance their green credentials and simultaneously allow investor objectives to be met,” O’Rourke said.

Ultimately, this isn’t just about ‘warm and fuzzy’ socially-responsible investment – it’s about corporate accountability, business transparency and proper risk management.

Heightened transparency – which is being demanded by governments, consumers, employees and shareholders – will drive more companies to seek Green Star ratings as they seek to demonstrate their commitment to green, not greenwash.

Michael Salvatico, vice president of MSCI Inc, says his company analyses the number and level of green ratings in buildings, including Green Star and NABERS ratings, when assessing real estate companies.

“Investors are increasingly using ESG research to evaluate company opportunities and risks, and assessing factors such as green buildings or human capital development,” he noted.

“Ultimately, investors are demanding global comparability and transparency,” Griffin added.  “Aligning the number of global labels and benchmarks across geographies is critical. Green Star has the opportunity to demonstrate equivalencies, which enable investors to compare best practice locally and internationally.”

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