Manager concerns grow over ESG’s impact on capital flows

An increasing number of firms do not believe environmental strategies help to attract investment, according to a new survey from Auxadi.

Real estate fund managers have become “more bearish” in recent months about their ability to promote ESG as a means of attracting capital because of complex implementation processes, regulation and global economic headwinds, according to a study by accountancy firm Auxadi.

Fifty-two of the 100 property managers surveyed – across the UK, continental Europe and North America – said that overall AUM in private equity real estate would fall as a result of the challenges firms have faced with incorporating ESG factors into their processes. This shows an uptick in negative sentiment compared with its 2021 report, when 40 percent of those surveyed believed AUM would decline due to the same factors.

“This paints a concerning picture of the real estate industry as it struggles with the reality of ESG investment in the face of complexities of implementation, meeting increasing levels of regulation and a possible global recession,” concluded the report.

But it added that the real estate managers most adept at incorporating ESG into their investment processes would “most likely reap rewards in the long term”. Forty-four percent of respondents said they were confident that AUM would rise as a result of adopting ESG practices, indicating some were coping well with the challenges.

Rima Yousfan, head of funds at Auxadi, argued that the research demonstrated a growing division between those confident in the progress being made and those who are not able to find solutions.

“Real estate managers have clear net-zero commitments but will face some significant hurdles in retrofitting existing assets and ensuring newly built ones are zero carbon across their lifecycle,” she said.

“Investors are increasingly likely to vote with their feet and back those managers that are demonstrating their ability to invest in solutions and implementing successful measures to move to net zero.”