Earlier this year, GPIF, the world’s largest pension fund, published a report on the importance of ESG in fixed-income investment. It concluded that lending to or investing in companies that do not operate according to high ESG standards puts reputation and bottom line at risk.
In July, Facebook lost $119 billion in market cap in a single day. The loss was partly due to Facebook’s lack of transparency on how it collects, uses and shares customer data. Facebook found itself entangled in a political and legal scandal that impacted its financial results. In the last 12 months alone we have seen breaches or controversies regarding the use of data at Google, PayPal, Instagram, Equifax and even the UN.
Privacy concerns are not restricted to the online world. There has been an explosion of investment in real estate technology, led by new and established venture investors such as Khosla Ventures, Andreessen Horowitz, Sequoia Capital, Fifth Wall and MetaProp, and also private equity firms like Blackstone, Brookfield and Warburg Pincus. Even LPs such as Temasek, GIC, Caisse de Depot and TH Real Estate are investing directly in this space.
As a result, the physical world is being filled with new data-collection devices: security cameras, sensors to detect meeting room usage and building amenities, NFC and Bluetooth beacons, voice-activated devices and appliances, air quality sensors and access control systems. These devices create vast amounts of data, and many also share that data with other devices and other cloud-based databases.
Advances in machine learning and artificial intelligence mean this data can now be used to extrapolate specific personal information. Security camera footage, for example, can be connected to software that identifies people’s faces, their moods, what they hold in their hand. Such software can even estimate the income level, education level, race and the sexual preference of people based on their clothing, facial features and body language.
In July, Cadillac Fairview, a wholly owned subsidiary of Ontario’s Teachers’ Pension Plan, was in hot water after media reports that information panels in its shopping malls clandestinely photographed visitors and assessed their age and gender through facial recognition software. In March, recordings from an Amazon ‘Alexa’ voice assistant were used as evidence in a murder case in the US. Devices of this kind are now being installed in hotels, office buildings and residential communities.
Privacy concerns are not restricted to consumer-facing devices. In China, urban police are scanning sewage in order to locate areas with increased drug use. In NYC, local authorities have been cross-referencing data from various databases to identify commercial tenants that are clogging the city’s sewage with cooking oil. And in Canada, Google’s parent company announced plans to “create a new kind of mixed-use, complete community” in Toronto, bringing its advertising billions to bear on the infrastructure of a whole city district.
Managers and investors beware
Over the next few years, there will be a dramatic increase in the amount of data collected from real estate projects. End-users will likely become increasingly concerned with how this data is being collected, stored and shared. This can lead to anything from reputation and financial damage to new regulation and compliance costs.
Institutional investors and managers would do well to get a clear understanding of how data are used in the projects they own and operate, and develop guidelines for the integration of new tools and technologies in the future.