Article | Intelligent Investment, Creating Resilience

Amid economic uncertainty, ESG remains the metric that matters

January 24, 2023 5 Minute Read

By Dragana Marina

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In times of economic downturn, uncertainty results in businesses adjusting their priorities to remain resilient. For investors that are sceptical about ESG, this could create additional headwinds and cause hesitation. However, we believe these trends to be short-lived. ESG is no longer merely a ‘nice-to-have’ element in corporate strategy; it is embedded into market practices and as such, visible in various aspects of decision making.

Findings from our 2023 European Investor Intentions Survey supports this conclusion:

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81%
of investors will continue to adopt ESG criteria in all investment decisions despite macroeconomic headwinds and a challenging geo-political landscape
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15%
of investors actively discuss ESG adoption, but as of yet have not fully adopted criteria in all decisions
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Only 4%
of investors have no plans to adopt ESG criteria

Respondents showed a clear willingness to adopt ESG criteria both to protect the future value of real estate assets, and the environment. The most popular ESG strategy among respondents is to upgrade existing assets to meet the standards of sustainability certifications. We expect that this focus on upgrading existing assets will increase as energy prices remain elevated due to geopolitical tensions. While this will initially be a priority in Europe, it is anticipated that green investment in commercial real estate will rise in importance worldwide.

Figure 1: Preferred methods of ESG strategy implementation

Source: European Investor Intentions Survey, CBRE Research, January 2023

One-third of investors are willing to pay premiums for ESG optimised assets. More importantly, more than half of those willing to pay a premium, stated the premium could be more than 20% (in comparison to a comparable non-compliant asset).

Figure 2: Of respondents willing to pay premiums to acquire ESG assets, what % are they willing to pay?

Source: European Investor Intentions Survey, CBRE Research, January 2023

This is being supported by investor expectations of occupier preferences and rental premiums for ESG compliant assets. In our latest European Analysis, we were able to quantify the impact of sustainability certifications on office rental levels – showing a 6% rental premium for European offices with sustainability certifications, compared with equivalent non-certified buildings.

The bottom line

Commercial real estate investors are operating in a fast-changing business environment. But ESG remains the metric that matters. Poor environmental performance, particularly in today’s economic environment, is seen as an investment risk with a potentially significant impact on a property’s long-term performance. For these investors, the development of a forward-looking strategy that builds on sustainable investment principles allows them to sustain competitive advantage and ensure long-term returns.

Read our 2023 European Investor Intentions Survey to find out more.

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