Invest in ESG compliant real estate: an innovative methodological approach for the assessment of the ESG level of the real estate investment funds

In the current geo-political context, attention to sustainable finance issues has grown with an increase in institutional and private investors who prefer Environmental Social and Governance (ESG) compliant investments: these investments are considered "resilient" with respect to possible future shocks markets, especially in the real estate sector. In order to support investment decisions, numerous metrics have been created to evaluate the level of ESG, often not very transparent and robust, which prevent comparison and discourage investors. The proposed research is aimed at defining a methodological approach that, consistently with the EU taxonomy and Sustainable Finance principles, is able to determine the ESG level of real estate investment funds for supporting the institutional and private investors during the decisional phases of choosing the best fund to invest in. The aim is achieved through the development of a transparent methodological approach structured into the following phases: i) analysis of the criteria and construction’s structure adopted by the main ESG metrics (es. GRESB, Sustainalytics etc.), ii) examination of the criteria considered by the metrics among the three environmental, social and governance issues, iii) identification of an adequate and balanced set of quali-quantitative indicators related to the ESG issues of the real estate investment funds, iv) development of an innovative assessment metric (ESG index) through the use of multi-criteria aggregation based techniques. In this way the proposed methodological approach allows to: i) provide a systematization of the existent literature on the ESG metrics’ features in order to highlight the main weaknesses, ii) ranking the ESG performances of the real estate investment funds, iii) support the institutional and private investors with a transparent and retraceable methodology that can be used for comparing the different real estate investment funds’ ESG performances and identify the most suitable one. The main contribution of the proposed research relates to the possibility of fostering the standardization of the ESG metrics construction in order to facilitate the comparison, avoid the “black boxes” of the construction process and applying the ESG principles in the real estate sector.