Institutional investors believe ESG is unimportant when investing in direct property, according to a report by Hermes Investment Management.
The investment manager’s annual Responsible Capitalism and Sustainability survey shows that, of 109 UK and European institutional investors surveyed, 48% of respondents believe ESG factors are unimportant when assessing direct property investments.
Only 19% consider them vitally important.
Chris Taylor, head of private markets at Hermes Investment Management, said the report shows many institutional investors are failing to recognise the importance of renewable energy and control emissions, or support sustainable communities and social enterprises.
“Given all the information available to these investors, the results here are astounding,” he said.
“Even in an area where there is a regulatory imperative, such as energy efficiency, the response is alarmingly dismissive.
“Nearly half the investors believe energy efficiency is, by and large, unimportant, and yet it is easy to demonstrate financial savings from best practice here and reckless to ignore the red tape.”
Taylor said the introduction of energy performance certificates was “simply another aspect of managing risk”.
He added: “Those investors that have decided not to anticipate regulatory change will get caught out.”
The survey results suggest investors are short-sighted or unduly influenced by short-termism – which Taylor says is problematic for pension funds.
Real estate, more than any other asset class, warrants – and rewards – a long-term approach to investment, he said.
Only 37% of institutional investors surveyed felt pension funds should give greater consideration to whether their investments will improve or detract from the overall quality of life experienced by beneficiaries when they retire.