R
eal estate sustainability has become a crucial aspect in the transformation of sustainability, with Environmental, Social, and Governance (ESG) principles reshaping the industry. As commercial real estate accounts for approximately 40% of global emissions, property owners must comply with ESG regulations to remain competitive.

    The emphasis on ESG and real estate sustainability is growing rapidly in commercial real estate capital markets. Impact investments have surged from $2.6 billion in 2019 to nearly $34 billion in 2022, with North America leading the charge. By 2024, ESG-mandated assets are expected to make up half of all professionally managed global assets.

    In 2023, ESG-focused funds outperformed traditional investments, achieving median returns of 12.6%. Over 70% of the top 100 REITs by equity market cap have set environmental sustainability goals, and more than 80% report ownership of green-certified buildings.

    Investing in ESG can deliver substantial financial returns while enhancing sustainability. Real estate ESG initiatives have enabled cheaper financing options with ESG tools, which can reduce real estate sustainability projects. The Inflation Reduction Act (IRA) has allocated $20 billion to green banks to support emission reductions.

    The IRA also provides tax credits such as the Investment Tax Credit (ITC), now capped at 70% of project costs, incentivizing clean energy generation. Sustainable retrofits can cut energy use by up to 79%, while improved resilience to natural disasters lowers insurance costs. Each dollar invested in sustainable practices can yield $4 in savings.

    Green financing and certification offer substantial benefits for investors. Certain places and states have promoted real estate ESG through innovative finance methods, offering competitive fixed rates with longer-term repayment options. Building certification also provides benefits, such as higher employee satisfaction and government incentives. Investors and property owners can use ESG reporting software tools to stay up-to-date with real estate ESG regulations.