Pitchbook ESG report cover

Pitchbook reported an uptick in negative responses to ESG investing this year, Credit: Pitchbook

Markets

Real estate low priority for impact investors

Just 16% of respondents in a global survey on green investment identified real estate as an area of focus for their organisation.

The most popular areas of investment were energy and climate (45%), according to Pitchbook’s survey of more than 500 VCs, fund managers and investors.

The Sustainable Investment Survey described real estate’s ranking as “surprising”, given that it includes topics like affordable quality housing and green buildings.

Taken at face value, the result would suggest low appetite in the wider investment world for funding ideas that could help real estate reduce its emissions. However, Pitchbook said that respondents were possibly not aware that these areas were part of the wider real estate category or that the survey did not attract many real estate investors.

Pitchbook ESG report

Investors’ focus in impact investing (click image to expand), Credit: Pitchbook

Backlash against ESG

A recurring theme in the report was a vocal backlash against ESG investment strategies, particularly in North America.

While the majority of both non-VC (77%) and VC (59%) fund managers plan to increase their attention to ESG risk factors in the coming year, there was a substantial minority with no intention to act.

In North America, 18% of respondents had no plans to incorporate sustainable investment work, compared to 5% among European respondents.

Some 37% of limited partners – investors into funds – in North America said that returns were the only important factor in investing, compared to 2.6% of LPs in Europe.

While the number of negative responses has risen, Pitchbook said this could be a reflection of more people choosing to take the survey to “register their displeasure”. Previous years might have only attracted respondents with positive interest in the subject.

The report suggested this was at least partly due to the politicisation of sustainable investing, describing some of the open-ended responses investors gave as “vitriolic” soundbites rather than arguments.

‘Lack of awareness’

The report said: “These responses seem to stem from a lack of awareness that ESG is meant to focus on the material non-financial risks that can pair long-term profits.

“Proponents of ESG feel that by focusing solely on profits, a management team is not properly looking out for the best long-term interest of the company and its stakeholders.”

Real estate, for example, has to respond to stricter regulations around emissions and energy performance or face fines and potentially lower asset values. The industry will also have to respond and adapt to the effects of climate change, such as increased flooding, on cities.

As last week’s Global Real Estate Sustainability Benchmark (GRESB) results showed, the industry is increasingly aware of the risks and is, at the very least, taking steps to understand its exposure to it.

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