REIT Group Says Health and Justice Investment Pays

The events of 2020 have given new urgency to the need for wise investors to factor in every company’s performance in environmental stewardship, social responsibility and good governance — collectively known as ESG.

Factors that may once have been thought of as non-financial have a powerful effect on the bottom line.

So says the second annual ESG report published in June by Nareit, the National Associate of Real Estate Investment Trusts.

“The twin health and economic challenges brought about by SARS-CoV-2, together with the killing of George Floyd and resulting protests in favor of social justice and racial equality in communities across the nation and world, underline boldly the fundamental and growing importance of ESG in all of its manifestations,” Nareit President and CEO Steven A. Wechsler said in an introduction.

“Environmental stewardship has long been a focus area for the REIT industry, with investments in energy-saving and waste mitigating technology, sustainable building materials, and responsible environmental management processes prioritized by nearly 100% of the industry,” Wechsler continued. In recent years, REITs have been tracking the impact of environmental efforts and found “significant cost savings, solid tenant and community engagement” and “lasting value-added benefits.”

Likewise, Wechsler said, developers, owners and operators of built spaces with the full range of uses for communities have “long been focused on social responsibility.”

“Yet, needless to say, there is much more work to be done, both in terms of effective, transparent reporting and community engagement, especially with respect to bringing African Americans and other people of color into the REIT and real estate investment industry,” Wechsler said.

Companies that own, operate or finance income producing real estate — known as REITS — own about $2 trillion worth of assets, the report said. About 87 million Americans invest in REIT stocks through 401(k) or other funds. REITS help finance some 2.8 million homes in the U.S., according to the report.

Nareit defines “ESG” as “environmental stewardship, social responsibility and good governance. The group uses the term synonymously with “sustainability.”

The report said 89% of REITs report ESG factors publicly, up from 78% in 2018. More than half issue stand alone sustainability reports.

“Both REITs and their stakeholders are increasingly recognizing the importance of holistic and interconnected ESG efforts, especially in the face of the COVID-19 pandemic and protests worldwide in favor of social justice for African Americans,” the report said. “REITs have the opportunity to use their experience developing robust governance policies and social initiatives to help improve the communities REITs serve and rely upon today and into the future. In rapidly evolving times, investing in sound ESG practices to build operational, financial, and community resilience is more critical than ever.”

The report predicted a “heightened focus on corporate commitments to support racial equality and act against social injustice, as well as the health, safety, and well-being of employees, tenants, and communities.”

In addition, “REITs will be looked to as significant contributors to solving environmental challenges and building resilience against climate-related risks,” the report said. “In order to effectively address the important environmental and social issues of today, good governance is crucial.”

“As governments and companies globally continue to invest in policies, practices, and initiatives to meet the objectives of the UN Sustainable Development Goals—to create equitable peace and prosperity for people and the planet—REITs can lead by leveraging and expanding the industry’s positive impact on communities and the environment,” the report concluded. “In coming years, Nareit will continue to support the industry’s sustainable growth and to drive lasting impact by engaging and educating stakeholders about leading practice strategies, goals, and programs including ESG oversight, management, tracking, and reporting.”