The state of ESG investing in Canada’s commercial real estate market : Opportunities and risks

In recent years, sustainability and resilience have become a priority for commercial real estate investors. The brown discount for unsustainable buildings has gradually become larger than ‘green premiums’ we see today for buildings leading on sustainability and resiliency. Financial market participants are increasingly under pressure from stakeholders to emphasise environmental, social and governance (ESG) factors in the investment decision criteria. The development of resilient assets, regulatory pressure and customer preference are compelling many investors to integrate ESG into the way they conduct business; however, putting strategy and action behind the work and finding a suitable market for ESG investments is no easy task. Across all real estate sectors, people are looking for truly sustainable assets and products. Real estate owners must consider what that means for tenants, investors and other stakeholders. Canada is emerging as a leader in a marketplace where investors are increasingly focused on ESG and are increasingly willing to divest from companies for not taking significant ESG action. In this paper, we discuss reasons presenting a compelling investment thesis for commercial real estate investors in Canada, including ESG-friendly regulations, population growth, market opportunities, demographic diversity, access to clean electricity and market stability. Moreover, it is discussed that investors require to overcome the data and technology selection barriers to measure, monitor and manage progress toward net-zero operation.