REITs and the impact of ESG on performance

Environmental, social and governance (ESG) issues have shot up the corporate, social and political agenda over the past 18 months. ESG is the acronym of the day, and the need to align business models with these concerns has never been greater. There is growing pressure from stakeholders, be they lawmakers, shareholders, regulators, or activists on companies of all sizes, and across all sectors to recognise and report performance against ESG metrics. REITs are now facing an increasing awareness by their investors of climate change and ESG investing themes, which is changing the criteria in selecting stocks. In addition, banks are getting reluctant to lend to non-ESG-compliant companies or are imposing unfavourable interest rates upon them, forcing them to comply with the new ESG regimes. Many of the Grade A tenants have already subscribed to ESG standards and practice it rigorously and will seek offices to rent (or hotels to stay) that have very high green certifications. Having the latest building green standards is becoming key to retaining or attracting new tenants and keeping their revenue streams intact and growing.