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The ranks of ESG investors are growing, and it’s no wonder. Real estate investors are increasing the use of environmental, social, and governance (ESG) criteria to screen investments, as research reveals this investing method can reduce portfolio risk, enhance returns, and help investors feel good about helping to shape a better world. For real estate investors looking for opportunities that integrate the three pillars of ESG, multifamily investments can be an excellent choice to create value through responsible investing. Lloyd Jones’ ESG initiatives reflect the firm’s longstanding commitment to socially responsible investing.
ESG Criteria and Multifamily Investing
Here are the three areas of ESG, and some considerations specific to multifamily investment, and how Lloyd Jones’ ESG initiatives reflect these principles.
Environmental– The environmental component encompasses water and energy conservation, recycling and safe disposal practices, and more ecologically sensitive approaches to landscaping and pest control.
Lloyd Jones’ environmental initiatives seek to implement energy, water, and waste-saving practices in order to achieve long-term reductions across its multifamily portfolio.
Social– The social component of ESG includes the people-related elements, such as the investment firm’s company culture and its attitude toward training and advancement, the health and safety of staff and residents, as well as its commitment to philanthropic causes.
Lloyd Jones’ social initiatives include a community giving program, Lloyd Jones Living, paid time off for every employee for volunteerism, a clearly focused path for leadership and advancement, and a corporate commitment to non-profit organizations such as Shelters to Shutters.
Governance– The governance component relates to how effectively the firm runs its business; its diversity and inclusion training; and its risk, compliance, and oversight processes.[i]
Lloyd Jones’ governance initiatives include a rigorous training program for risk management, clearly defined accounting controls, and transparency through monthly and quarterly reporting to investors.
Why ESG Is Important for Multifamily Investors
Better Alignment with Investors
Investors are paying attention to ensure they are investing in real estate assets that integrate environmental factors. According to a 2020-21 report from The Counselors of Real Estate on the top ten issues affecting real estate, ESG practices are critical to real estate investment, citing a growing influence of millennial investors who have shown much greater concern about climate change and social issues than their parents. By 2030, millennials will control nearly five times the wealth they do today, and it’s important to them that their investments reflect their values.[ii] In fact, a 2019 survey of high worth investors found that that 95% of millennials were interested in sustainable investing.[iii]
Tenants Want To Live in Sustainable Communities
Renters are willing to pay a premium to live in sustainable, eco-friendly multifamily communities. From LEED certifications to energy-efficient appliances, water-saving shower heads, and LED lighting, multifamily dwellers are looking for these options as standard amenities in their apartments. In a survey of more than 4,200 apartment residents, 83% believe living in a green community is beneficial to their health, and 59% would pay more to live in a green or sustainable community.[iv]
Better Returns for Investors
A focus on ESG actually helps the financial bottom line. In multifamily buildings, a good ESG profile will reduce operating costs while increasing resident loyalty and decreasing price sensitivity. [v] Installing more energy-efficient equipment lowers costs. In fact, green buildings can have 9–14% lower operating costs than their non-green counterparts, which leads to increased net operating income (NOI).[vi]
What To Look For in a Real Estate Investment Firm’s ESG Practices
While ESG initiatives can contribute to the investment results, they require implementation. This involves the owner and its corporate commitment to sustainability and equity. But it also depends on the property and asset management teams to be proactive in operating and capital improvement decisions, ensuring energy-saving goals are met, and sharing information with residents on how they can participate in community green-up initiatives. As such, Lloyd Jones has assembled an ESG committee comprised of both corporate and multifamily operations team members to guide and execute the firm’s ESG strategies.
Multifamily owners and managers that focus on ESG issues, like Lloyd Jones, are well-positioned to attract and retain tenants who want to live in more sustainable communities. This leads to long-term, stable occupancies and a reduced need to offer rental incentives. Research also shows that properties with green certifications and energy-saving features tend to command higher rents. Stable occupancy with maximized rents is key to delivering long-term value for multifamily investors.
Referenced in the Philadelphia Business Journal.
[i] https://www.fool.com/investing/stock-market/types-of-stocks/esg-investing/
[ii] https://www.cre.org/real-estate-issues/the-new-norm-esg-as-a-material-risk-and-opportunity-for-real-estate/
[iii] https://www.morganstanley.com/content/dam/msdotcom/infographics/sustainable-investing/Sustainable_Signals_Individual_Investor_White_Paper_Final.pdf
[iv] https://www.multifamilyexecutive.com/property-management/resident-life/most-residents-will-pay-more-for-green-features-survey-finds_o?utm_source=newsletter&utm_content=Article&utm_medium=email&utm_campaign=MFE_101118%20
[v] https://www.multifamilyexecutive.com/business-finance/socially-responsible-investing-accelerates-in-u-s-multifamily-space_o
[vi] https://fidic.org/sites/default/files/World%20Green%20Building%20Trends%202016%20SmartMarket%20Report%20FINAL.pd