Could ESG be the Legacy of coronavirus?

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As the world is gripped by coronavirus, you don’t have to dig far into your memory to recall a recent natural disaster – for example, floods in the UK and the Australian bushfires. The impact of coronavirus will ultimately pass, will ESG be its legacy?

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Australian Bushfires

My experience of moving to Asia in the aftermath of SARS was a sense of greater collective responsibility across the region and much of this can be seen playing out in Asia’s efficient response to the current pandemic.

When assessing the impact of coronavirus on the International Project Marketing (IMP) industry, will it ultimately mean greater adoption of ESG in our sector? Lets hope so!

ESG

According to Wikipedia, ESG (Environmental, Social, and Governance) refers to three central factors in measuring the sustainability and societal impact of an investment in a company, or indeed in an investment. These criteria help to better determine the future financial performance of a company’s return and risk. I suspect these factors will play a much broader role in the IPM industry in the wake of coronavirus. Market participants will need to be able to understand and articulate their position in this space and, for those who cannot, the outcome may be highly damaging. 

ESG will likely be led by larger institutional investors such as BTR investors who have the most influence amongst investors (ESG dominated discussions at a recent wealth management conference I attended with some of the world’s largest investors in attendance). However, the reality is, smaller investors will also follow suit. There is no doubt that some of this ESG investing will be for altruistic reasons. However, it is just common sense in our changing world. In my experience common sense always wins out over above all other considerations. So how might ESG manifest itself in our industry?

Environmental

For investors, governments are set to develop new standards for built assets and residential development does not sit outside of this.  If investors are considering two assets side-by-side and one has the potential to require substantial and costly retrofits to deal with new, or changing regulations, it is clear which decision investors will make.

Likewise, developers and agents who promote and publicise their environmental virtues will also have to walk their talk. Producing and sending vast quantities of materials and staff around the world to various sales events will make it increasingly difficult to retain their credibility.

Social

From a social perspective the gap between the haves and have-nots, may or may not have ever been wider – I don’t know, I wasn’t around for the Roaring 20’s.   Either way, if it is or is not, it’s largely irrelevant. The fact is governments are set to act to address the impact of housing inequality and the issue will dominate the agenda over the coming years.

History suggests that governments are simply unable to address their inefficient planning regime(s). At the same time, given the immovable nature of property, it is easy to tax. Taxation of investors to deal with housing inequality is likely to continue to be on the political agenda. Investors will be conscious about both social change and social mobility and investing in assets which have one eye on the future will be important.

As an industry, more transparency is needed about levels of foreign ownership and the vital role it plays in unlocking new housing development. For countries who cannot find effective ways of capturing and channelling FDI, they will most likely find that capital finds other homes. It is difficult to believe that there will not be a need to stimulate housing markets around the world post-coronavirus. So being adept at this will likely be the key to driving a housing recovery; and indeed broader a recovery within economies.

Governance

Governance both in the corporate sector and at a public level will become increasingly more important. In the private sector, market participants will need to continue to find better ways of spreading rewards internally across their enterprises and engaging with a broader demographic. Those who cannot adapt to meet these changing demands will likely find that both an inability to attract top talent as well as likely future government interventions will stifle growth and returns.

At a government level more also needs to be done – debate is a useful tool. Government departments, institutions and agencies have an obligation to seek feedback and input from all sides of an argument. However, they equally have the same obligation to bring debate to a conclusion, bring forward clear regulations together with clear explanations on why a particular decision has been made and to implement these actions. Particularly in the West, populations will become increasingly dissatisfied with governments who cannot deliver and implement effective housing policies.

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