Investing in tomorrow: Unpacking the economic upside of ESG with BREEAM and J.P. Morgan

As more investors incorporate sustainable considerations into their evaluation of potential investments, real estate owners and operators are wrestling with pressing questions. What sustainability initiatives can also enhance financial returns? How can a sustainable strategy be adjusted to turn the focus from risk to opportunity? How can my portfolio balance ESG progress while protecting — or better yet, furthering — the bottom line?

In the latest installment of BREEAM USA’s ESG Webinar Series — “Investing in Tomorrow: Unpacking the Financial Case for ESG” — Adam Slakman sat down for a fireside chat to share his insights as Managing Director and Head of ESG Americas Real Estate at J.P. Morgan with Breana Wheeler, Director of U.S. Operations at BREEAM. Adam detailed how a strategic approach to sustainability hinges on accelerating sustainable efforts while safeguarding stakeholder value. The duo went on to discuss how to explore which material factors are worth prioritizing, underscoring how ESG initiatives can both mitigate risk and add value for asset owners and stakeholders.

Throughout the conversation, Wheeler and Slakman offered valuable insights informed by combined decades of experience in the real estate and sustainability sectors, including:

1. Many ESG and resilience initiatives can not only protect, but also boost asset value and provide strong ROI as tenants work towards net-zero goals:

Asset value will be enhanced if you can improve NOI, and you can do that with several different levers — like getting more energy, water, or waste-efficient to lower bills,” said Slakman. “Those are easy wins; LED lighting is low-hanging fruit applicable to nearly every property. I recently got a fund manager to commit to our pro rata share for rooftop solar, because I could economically justify it with an IRR.

I encourage a change in mindset, turning risk into opportunity,” shared Wheeler. “Instead of just worrying about decarbonization deadlines, let’s view sustainability as value creation. This unlocks the potential for real estate practitioners to ask: at the asset level specifically, how can environmental and related efforts actually boost value?

2. Investors are scrutinizing core, asset-level metrics more closely than ever before; be prepared with comprehensive, holistic performance data:

On the asset level, we track core data around energy, water, waste, and emissions with benchmarking systems like Energy Star ratings where possible,” said Slakman. “Many LPs use frameworks like GRESB or regulatory reporting requirements as yardsticks. From their position, those core asset-level metrics around energy, emissions, water and waste seem non-negotiable.

Slakman noted that, in general, investors have grown far more sophisticated with more targeted and expansive questions in recent years. “Years back, I’d get three-to-five easy ‘yes/no’ sustainability queries that I could briefly respond to,” he said. “Now, it’s pages of thoughtful prompts looking for detailed explanations.”

The key is more than just possessing ESG data – it’s communicating that data intelligently,” pointed out Wheeler. “Currently, investors are interested in the rigor of your sustainability processes and reporting methodology. That indicates strong governance policies enabling disclosure and accountability. It’s exciting to consider the range of possibilities for measuring social impact down the line.

3. As the financial impact of climate risk increasingly affects asset value, many stakeholders are zeroing in on resilience as a key component for a successful sustainable strategy:

[J.P. Morgan runs] most of our portfolio through climate risk mapping. Our property teams and asset managers each receive detailed lists of location-based hazards to address through mitigation, adaptation, and recovery planning,” Slakman stated. “In several instances, implementing these measures has helped us reduce drastic insurance premium hikes that are as much as 60% year over year. In general, insurers are just beginning to analyze properties for future climate resilience — we’ll see more do so as time goes on.

Wheeler noted that physical climate risks — and consequently, adaptation and resilience — now have real financial impacts. “Due to heightened climate risks in geographies like California, we now see insurance availability shrinking and costs rising, outpacing rents and inflation,” she said.

Many sustainability factors fall under risk management, a huge umbrella encapsulating topics now elevated and captured under ESG lettering,” Wheeler concluded. “We’re not necessarily doing anything new by assessing risks material to investors or regulators and managing them accordingly. As building performance standards rise, ESG and resilience concerns may end up being integrated into overarching risk assessment frameworks.

If you missed the webinar, no need to worry — you can view the full recording here.

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