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ESG REITake: Commitments to ESG and net-zero goals grew in 2021

This S&P Global Market Intelligence exclusive presents a rundown of recent environmental, social and governance news involving real estate companies.

Environmental, social and governance initiatives are expected to play a larger role in U.S. real estate in 2022, reflecting anticipated changes to legislation and federal regulations, according to a 2022 market outlook report from real estate services and investment firm CBRE Group Inc.

The U.S. Securities and Exchange Commission is expected to issue rules to improve ESG reporting consistency across various disclosures and reports to investors, which will likely heighten investor and occupier focus on how their real estate decisions may hasten ESG compliance, the report said.

ESG will lead to more demand for efficient buildings and retrofits, and property portfolios will play an important role in meeting ESG targets in the coming years, according to the report.

Sustainability

* U.S. equity real estate investment trusts showed an overall improvement in ESG efforts during 2021, according to 2021 Global Real Estate Sustainability Benchmark scores.

Of the 53 U.S. REITs scored by GRESB, 38 were assigned a positive score trend in regard to their 2021 GRESB Participant Score, while 14 had stable scores and only one REIT was assigned a decrease compared to the year prior.

* U.S. real estate investment trusts are under increasing pressure from stakeholders to embrace ESG values, a trend that is expected to drive more REITs to invest in green properties.

But as of October, only 25% of U.S. REITs have portfolios where at least 25% of properties are considered green, and only 17% have portfolios where 50% or more of their properties are green, according to Sustainalytics BV, Morningstar's ESG-focused data company.

The slow uptake is generally attributed to the additional cost and resources of acquiring or modifying buildings to meet green standards.

Net-zero transition

* Commercial real estate companies in the U.S. and Canada are increasingly joining the race to net-zero carbon emissions amid mounting pressure from various stakeholders in the aftermath of the COVID-19 pandemic, industry insiders say.

Drivers for the transition to net-zero include increasing pressure from institutional investors to have a climate action plan and employees of real estate companies pushing management to address ESG issues. More than a dozen real estate companies have committed to or set net-zero goals since the start of 2021, but the pace of company adoption differs.

Green bonds

* Green bond offerings represent an increasing share of U.S. real estate investment trusts' debt capital raises as property owners move to earmark proceeds to environmentally sustainable projects.

Green bond offering proceeds represent 16.4% of the capital raised through U.S. REIT debt offerings so far in 2021, putting the segment on track for an all-time, full-year high, up from 10.3% of total debt capital raises in 2020. As of Sept. 9, the count of REIT green bond issuers for the year already equals 2020's total.