Real estate investors not only play an important role in encouraging net zero targets in the sector, they also can play a part in bringing about positive social change.
The diversity and complexity of debt markets bring unique challenges when incorporating ESG factors in investment decisions, however opportunities for responsible investors abound.
The materiality of ESG factors must be evaluated on an asset-by-asset basis, given the diversity of infrastructure. Environment is particularly relevant as infrastructure projects have such a direct impact on biodiversity, resource use and the local environment.
Using an ESG lens to identify risks and value creation opportunities is becoming more mainstream in private equity. The use of impact methodologies will also increase, answering stakeholders’ demands for evidence of the real-world impacts of ESG programmes.
Valuation and risk models must be sufficiently long term to capture the full impact of ESG risks and opportunities. There are trade-offs between capturing the benefits of deep ESG analysis and building a portfolio that adheres to traditional diversification approaches.
To meet their climate change commitments, asset owners will need to develop increasingly sophisticated systematic approaches to assessing and benchmarking the alignment of prospective managers.
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