Real Estate and the Impact of ESG

By now, in the summer of 2022, the same trends are discussed in just about every industry as we emerge from the pandemic -- inflation, labor shortages, supply chain disruptions, new working trends, among others. These trends are driving business decisions and are already impacting companies in observable results.

We are seeing the impact, some positive and some negative, with our clients. But one trend that is not yet having such an immediate impact is environmental, social and governance (ESG) criteria. But what does this mean for the real estate sector? 

It might not seem like real estate is at the heart of environmental issues, and other industries would be more impacted by sustainability legislation. However, this topic will eventually become a top priority for every real estate investor, both commercial and residential. According to the United States Environmental Protection Agency (EPA), the commercial and residential real estate sector contributed to 13% of U.S. greenhouse gas emissions in 2020.  That represents the fourth-highest sector in the U.S. behind transportation, electricity production and manufacturing. 

As an investor, this would mean building sustainable practices into new buildings and revamping old ones to conform to the developing ESG regulations. Especially if the goal is to continue to build a sustainable real estate company well into the future, investors and capital-raising could be heavily impacted, depending on a company’s willingness to adapt and innovate. While new SEC required disclosures are applicable only to publicly traded companies, and most real estate investing companies are privately held, these new requirements are just the first step in pressuring all industries to implement sustainable practices.

In the foreword to the Biden administration’s Climate-Related Financial Risk: A Roadmap for Safeguarding the U.S. Economy, it states that “the United States government is using all of its tools to properly account for and mitigate climate change-related financial and economic risks […].” So, while the real estate sector might lag behind in the immediate impact of required legislation, operators will need to continually assess the risk of new developments and seek to find value opportunities in new ventures. 

About Schneider Downs Real Estate Services

The Schneider Downs Real Estate industry group provides accounting, tax and consulting services to clients nationally and internationally. Our real estate group meets our clients’ needs by providing value-added solutions in all areas of real estate ownership, including commercial, industrial, residential, multi-family, student housing, hotel and land development.  

To learn more, visit our Real Estate Industry Group page.  

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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