Investors reconsider ESG adoption amid challenging market

While most European investors will continue to adopt ESG policies, many US and APAC investors plan to delay adoption, according to CBRE.

Although private real estate investors overall remain committed to ESG in their investments, some of them said the current macroeconomic and geopolitical climate will negatively affect their level of adoption of ESG policies for the foreseeable future, according to three regional investor intention surveys released by CBRE last week.

Close to half of the investors in the US and Asia noted the current environment would delay or postpone their ESG adoption as ESG is “costly and the payback periods can be long,” according to the US and the Asia reports. Meanwhile, Europe is leading the charge, with 81 percent of investors pledging to continue to adopt ESG criteria in all investment decisions despite macroeconomic headwinds and a challenging geopolitical landscape, according to the Europe report.

The US had the highest percentage of investors that were unwilling to pay a price premium for ESG-compliant assets. Over half of the US investors said they were unwilling to pay a price premium for ESG-compliant assets and none of them were willing to pay more than a 16 percent premium. This was followed by Asia where around 30 percent of the investors were unwilling to pay a price premium.

On the other hand, over a third of investors in Europe are willing to pay premiums for ESG friendly assets and among half of these investors are willing to pay more than 20 percent. Having said that, paying premiums for an ESG friendly asset was only the fourth most popular strategy for ESG strategy implementation in Europe. The top three preferred methods are upgrading existing assets for green certification, consulting external rating parties in assessing asset acquisition and participating in green financing for real estate.

The three investor intention surveys compiled a total of more than 1,300 responses from investor types that included real estate funds, developers/owners/operators, private equity funds and high-net-worth individuals/family offices.