ESG in action for 2023: What does it mean for multifamily owners, operators, and investors?

Estimated read time 4 min read

According to Multi-Housing News the major rental housing developers and property owners factor in environmental, social and governance considerations into their apartment community plans and projects. How does ESG fit into Multifamily, and why is it important for apartment community investors to be concerned about this now more than ever before? Here’s an overview of what it means today and how it can be incorporated into community plans for 2023.

It is about financial performance and sustainability

ESG is a term that was originally used to describe investments that prioritized optimal environmental, governance, and social factors. When ESG is the priority, investments take into account both human and environmental wellbeing. OECD Paris reports that ESG investing is driven by a number of factors, such as the increasing societal awareness of climate change risks, the benefits of ethical business practices, and the necessity for diversity at all levels of the workplace.

ESG investing is the result of the belief that environmental and social factors are increasingly affecting the financial performance. It is about creating value and mitigating risks.

Adapting to changing resident priorities

Both current and prospective residents are demanding that their landlords pay more attention to the social impact of companies they work with. In 2021, Rachel Woolf, SVP Investor Relations & Operations at Blue Vista Capital Management, told the National Apartment Association UNITS Magazine that “over the past 5 to 10 year, there has increased focus on being a good corporate citizen.” Take a look at these statistics from the NielsenIQ Global Health & Wellbeing Report.

  • 67% of global consumers are concerned about the environment and their impact on the planet.
  • 68% of global consumers surveyed are willing to spend more on products that help vulnerable communities.
  • 34% of global consumers surveyed are more likely than two years ago to purchase products with sustainability credentials
  • Multifamily operators and owners who have a commitment to sustainability may find that their customers are more willing to continue leasing from them.

Multifamily operators, owners and managers can close environmental gaps

According to the U.S. Department of Energy (DOE), the building sector accounts for 40 percent of the energy consumption and CO2 emissions in the U.S. What can multifamily communities do to promote a higher level of environmental respect? You can do this in a number of ways, including:

  • Investing into programs and solutions to improve energy data and reporting, and help raise the bar through greater awareness and transparency about consumption.
  • Rent collection, resident communication, and maintenance requests can all be done digitally.
  • Energy efficient appliances and practices for energy conservation
  • Recycling is part of a thoughtful waste management strategy
  • Use of energy-efficient lighting in the community, including LED bulbs for residents’ homes
  • Providing electric vehicle charging stations, and recycling to residents makes it easier for them to be environmentally friendly.
  • As a result of resident retention, reducing resident turnover can reduce the use of natural resources required for maintenance and repair.

Welcome diversity and inclusion

ESG’s social considerations include both employee and customer relations. Communities can encourage social considerations among residents and teams by:

  • Create and maintain employee-friendly workplace practices such as generous benefits, paid sick leave and other benefits.
  • Dismantling barriers in the workplace to accessing resources and opportunities is a way of supporting diversity, equity, justice, and inclusion.
  • Maintaining fair business practices and treating all business partners and suppliers with respect
  • Engaging with neighboring communities to promote and support local charities and small businesses.
  • Supporting physical and mental wellness in employees and residents

Multifamily Governance Considerations

By adhering all legal and federal requirements, multifamily communities as well as their owners and operators are able to mitigate risk at all levels. You can, for example:

  • Fair housing laws and treating all customers fairly
  • Privacy of customers and employees is a priority in all community operations
  • Secure transactional payment across all applications
  • Maintaining an ethical code in all aspects of business, from hiring practices and employee relationships to client and partner relations
  • All local, federal, and state laws and legal requirements

Long term rewards of investing in ESG now

Colliers’ third annual Global Investor Outlook reports that many multifamily investors are already on board the ESG bandwagon, and include 5-10% in their portfolio allocations for commitments over the next five years. Multifamily firms can meet increasing pressures from customers, investors and business partners by committing to ESG. This can help reduce risk, cut costs, and protect return on investment, all of which contribute to the bottom line. Multifamily property operators that incorporate ESG efficiency can stay ahead of the curve and may even boost asset value in the long term.

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