Looking back on NAVIGATE’24, our client advisory meeting held in London the week before last, one of the most fascinating conversations I had was with a representative of a large asset management firm.
He explained the critical importance of having a comprehensive understanding of ESG characteristics of alternative investments, specifically for real estate assets.
Of course, there are all the classic financial metrics that are used in monitoring a particular real estate property – net operating income, loan-to-value ratio, cap rate, etc. But there is also a whole other range of ESG metrics that should be used to gain deeper insights such as energy efficiency, physical risk, and tenant well-being.
There is, in fact, a direct correlation between higher revenues and higher scores on ESG-based quality criteria and risk assessments. Properties that have higher sustainability ratings are much more likely to be occupied than those that do not, and are therefore likely to be more profitable. So, it’s really a question of simple math. Having the right insights can actually contribute to increased value and market viability – all of which comes from having access to the right data.
Moreover, there are cost efficiencies in automating the process of measuring and improving KPIs in alternative investments. The more easily and efficiently their data can be obtained and analyzed, the greater the ability to meet the increasingly faster-paced expectations of investors looking to see reports throughout the year, not just at an AGM. A stronger focus on leveraging the learnings and capabilities using state-of-the-art mechanisms employed in the listed market will become absolutely essential for asset managers to remain relevant, vibrant, competitive, and ultimately profitable for their investors.