07 Jul What is ESG? And How Can it Improve Your Investment Strategy?
What is ESG?
ESG – Environmental, Social, and Governance –is an investment strategy that proposes the idea that putting your money to work with companies that strive to make the world a better place will also lead to better, more reliable returns. In the past decade, market returns from companies that rate well on ESG metrics and funds that prioritize ESG issues have outperformed traditional “profit first” opportunities.
How Did ESG start?
The idea of figuring environmental or social good into an investment equation was controversial when it first developed around the millennium, and ESG drew fire from market purists who thought that doing anything with your money for any reason other than making a profit was just a lot of baloney. But something funny happened on the way to the deli: Since 2008, when investment vehicles designed by such purists caused the global financial crisis, ESG has proven to be a valuable tool for ensuring that returns are maximized.
And, as it turns out, investments that have high ESG ratings are considered particularly resilient during downturns, like the 2008 financial crisis, and more recently, the COVID-19 lockdowns. The S&P found that in the first year of the pandemic large funds with environmental, social, and governance criteria outperformed the broader market.
So How Does ESG Work?
ESG investing relies on independent rating agencies that help assess a company’s or investment property’s performance when it comes to environmental impact, social policies, and corporate governance issues. It may seem surprising that a company or investment property does better when, say, it is run by a gender-diverse management team, or when it is genuinely trying to implement energy or water efficiencies, or if it is focusing on maintaining the utmost transparency throughout its organization. But study after study has shown that such factors are part of the competency equation in modern organizations.
Does this mean that the way businesses have historically been run can’t be successful anymore? Of course not. It just means that it is MORE likely that a team that takes ESG seriously will do well, and will be less likely to expose your investment to the kinds of risks that could spell trouble. For precisely this reason, we avoid markets subject to serious climate risk or which appear to be in social decline.
A General Summation of ESG
Benjamin Curry, an advisor to Forbes, sums up the criteria used to evaluate companies for ESG investing like this:
- Environmental. What kind of impact does a company have on the environment? This can include a company’s carbon footprint.
- Social. How does the company improve its social impact, both within the company and in the broader community? Social factors include everything from LGBTQ+ equality, racial and gender diversity in both the executive suite and staff overall, and inclusion programs and hiring practices. It even looks at how a company advocates for social good in the wider world, beyond its limited sphere of business.
- Governance. How do the company’s board and management drive positive change? Governance includes everything from issues surrounding executive pay to diversity in leadership as well as how well that leadership responds to and interacts with shareholders.
For PCRP Group, these ideas are not just theories: We put them into practice. Our board, like our investment group, is diverse in gender, race, and geography. We believe in serious transparency, in using climate and social metrics to assess the risk that applies to any given investment property. But most importantly, we always keep in mind that we’re all humans – residents, investors, partners, employees, and contractors alike.
ESG, at its core, can be stated quite simply: Do well by doing good. We couldn’t have said it better ourselves.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!