There’s a lot of buzz surrounding environmental, social, and governance (ESG) investing for good reason: An ESG focus now accounts for $1 of every $8 of all U.S. assets under management—an estimated $8.4 trillion in 2022.

Bob Simpson: President and CEO - Multifamily Impact Council (MIC)
Bob Simpson: President and CEO - Multifamily Impact Council (MIC)

A large part of this surge comes from institutional investors like sovereign funds, university endowments, and pension funds, as well as large investment houses like Goldman Sachs and Nuveen. The optics of impact investing are attractive to many. But so is the investment idea of hedging risk with firms that actively plan for a changing climate, societal shifts, and equitable management practices through a long-term ESG strategy.

Richard Randall: CEO and co-founder - Echelon Energy
Richard Randall: CEO and co-founder - Echelon Energy

How does impact investing apply to multifamily investors, owners, developers, operators, and renters? A good pair to ask are Bob Simpson, president and CEO of the Multifamily Impact Council (MIC) and Richard Randall, CEO and co-founder of Echelon Energy, a specialist in ESG transformation in the multifamily space. Each presents an informed view of ESG opportunities and challenges.

MFE: Does “doing well by doing good” translate well for multifamily investors?

Simpson: The No. 1 thing to understand about ESG is this is not about doing business differently. This is about ensuring the maximum good for all. Think of it as “oh-by-the-way” investing. Your primary goal is to meet or exceed investor expectations. The happy by-product is a better environment and society for everyone.

Randall: ESG isn’t a charitable exercise. If properly focused and managed, ESG generates a return that can be accurately measured. Doing business “the right way” delivers a host of benefits, from reduced energy costs and renter churn to market differentiation and so much more.

MFE: How should an owner think about ESG?

Randall: Imagine an upside-down pyramid with renters at the top, followed by employees, investors, and the owner at the tip. Serving the best interests of the renter through ESG is a path to a sustainable, positive outcome that serves the best interests of everyone in the pyramid.

MFE: Where do owners start?

Simpson: Start with renters. If your property is affordable and safe, quality renters will stay put, reducing vacancy and marketing costs, and lifting net operating income. Most owners already have an informal ESG framework in place. Critically assess where you are today. You’ll see where you’re strong or need more work.

Randall: I’d like to see a kind of industry-accepted “miles-per-gallon” performance metric that all multifamily stakeholders can count on.

MFE: What kind of improvements are you talking about?

Randall: Start with low-hanging fruit. Many garden-style apartments of the 1960s, ’70s, ’80s, and ’90s can be transformed with LED lighting, light controls, and upgraded HVAC. Also, high-efficiency showerheads and toilets, fixed leaks, and Energy Star-certified appliances help cut costs.

MFE: Where do things stand with ESG and multifamily investing?

Simpson: Increasing numbers of impact-motivated investors like what they see in multifamily. They love that it’s a stable asset with a risk-adjusted return on investment that’s available in a variety of forms and terms. The key as an asset class is to develop accepted impact standards and reporting guidelines that reduce investor uncertainty. There’s a lot of momentum in the industry to get behind ESG principles.

For more about ESG initiatives and how you can incorporate them into your business model, visit MIC and Echelon Energy.

Alliant Strategic Investments (ASI), a Walker & Dunlop company, is a founding member of the MIC and works with the organization in developing impact standards and reporting guidelines for multifamily investors and property owners. Bob Simpson, president and CEO of Multifamily Impact Council works closely with ASI in the affordable and workforce housing ESG space. ASI also works closely with Randall and the Echelon Energy team to make its communities more energy and water efficient through capital projects.

Learn more about how Walker & Dunlop can help advance your commitment to doing well by doing good by thoughtful application of ESG principles and be sure to read the ASI Impact Report.

This article was repurposed from the Walker & Dunlop Multifamily Outlook Report. Take a look.