Finance & Real Estate

2020-11-22 Andrea Beltratti, Alessia Bezzecchi

SESG for Asset/Wealth Management and Real Estate

Sustainability is the new paradigm that requires reinterpreting environmental, social, and governance factors for both asset/wealth management and real estate. In the world, the assets managed based on ESG criteria are equal to 40 trillion dollars. The attention for those criteria thus assumes a predominant role in both sectors.

"We inherit the earth from our parents, but we borrow it from our children," is a sentence used so often in official reports (a famous example is the Brundtland Report of 1987 entitled Our Common Future) that it cannot be attributed with certainty to some great thinker. It is one of the most effective ways to intuitively and comprehensibly describe the concept of sustainability. Having capital and not wasting it, but caring for it and growing it gradually over time. And what is the most precious capital for all of us, especially in the "global village" in which we live? The planet. Thinking in terms of sustainability helps prevent the sense of impotence communicated by David Bowie in 1969 when he sang: "Planet Earth is blue and there’s nothing I can do." But what exactly is the relevance of sustainability for Environmental, Social and Governance factors (ESG), and how can the idea of Sustainable ESG (SESG) influence decisions in asset/wealth management and real estate?

Sustainability, ESG, and social narrative

A search conducted for the acronym ESG in the Google Books Ngram Viewer – a search engine that shows the percentage of books and publications in the database that contain a given term – shows constant growth in the period from 1950 to 2019, with a surge in the last few years, when the use of the term has almost doubled. "Sustainability" is even more popular (35 times more popular, to be exact). Such an increase in interest fits fully into the context of "economic narratives" studied by Shiller, that is, those social phenomena able to influence people's behavior and the fate of economies and businesses.[1] For precisely this reason, businesses in any sector must always pay attention to these themes. Independent of the convictions of those who control a company, the passport to good social citizenship always passes through an impact analysis on elements that until just a few years ago were not part of business culture.


Speaking of SESG is crucial to take into account the long-term consequences of any choice and to properly classify the immediate costs of efforts to improve ESG factors, with current but also future benefits, integrating everything into the logic of sustainability.

The possibility that actions that favor ESG components conflict with economic growth has unfortunately been confirmed by the global pandemic. Especially in the second phase of the virus's spread, it has become evident that choices regarding the protection of health can conflict with maintaining income for many categories of citizens, and require an in-depth debate on the value of human life and the long-term consequences of the current restrictions, and the impact on the population of the reduction of economic resources.

More in general, at first it may seem easy to reconcile all four elements of SESG, given that we are coming from a long period in which the search for economic efficiency has at times neglected the impact of methods of production and consumption. The arbitrage margins that are associated with maintaining, or even increasing economic growth, together with the measures that improve environmental, social, and governance aspects, can initially lead to ignoring the existence of a trade-off at the business and social level. Yet "doing well by doing good" becomes increasingly difficult, and the potential contradiction between the choices that reduce negative externalities and those oriented only towards economic growth can become more significant. We believe that from a long-term perspective, an essential element is that of measurement: taking ESG seriously also means innovating the way economic activity is recorded, shifting attention from GDP to take into account the value, whether on the market or calculated otherwise, of environmental, social, and governance factors.

SESG for asset/wealth management and real estate

What impact can attention for SESG have on two crucial sectors such as asset/wealth management and real estate? A great one, in our view. In the world, the assets managed based on ESG criteria are equal to 40 trillion dollars, and represent close to half the potential, that can estimated as the value of the assets managed by institutions that have signed the Principles for Responsible Investing (100 trillion dollars).[2]

What is even more significant from the standpoint of the potential specific impacts, is the rush by the main ratings agencies and global information companies to provide ESG ratings, not only for publicly listed companies but also for unlisted companies. The ratings rush has a significant impact on the end companies, and can heavily modify their behavior. Moreover, there is still a great deal of diversity among ratings: the same company can be evaluated very differently by different evaluation systems due to a lack of agreement on the measurement of the various characteristics that contribute to identifying ESG factors. Giving considerable importance to elements of sustainability could thus produce an even greater divergence among ratings, given the ambiguity that characterizes the term.

In real estate, the environmental certification of properties has been present for a long time, such as Leadership in Energy and Environmental Design (LEED), that is now evolving to take into account the wellbeing of the residents of buildings (WELL certification). Academic research shows that properties with environmental certifications allow for "doing well by doing good." In a meta-study that reported the results of 70 papers published in the leading international real estate magazines, it is shown that the rental income produced by certified properties is 23 percent higher; the occupancy rate of properties improves up to 17 percent; sales prices can be as much as 40 percent higher; and even the cost of equity and debt can be almost 0.5 lower. There are marginal improvements on various aspects that, considered together, can create enormous value for a new real estate project that focuses on environmental aspects. The real estate sector must innovate continuously both to take into account social elements, and above all to incorporate elements of sustainability, including linked to climate risk, in the method of planning and implementation of all projects.


Andrea Beltratti is a Professor in the Department of Finance of the Bocconi University, where he teaches Economics of the Real Estate Market and Equity Portfolio Management, and Academic Director of the Executive Master in Finance (EMF) at the SDA Bocconi School of Management.

Alessia Bezzecchi is Associate Professor of Practice in Corporate Finance & Real Estate at the SDA Bocconi School of Management, where she is Program Director of the Executive Master in Finance (EMF) and of the Executive Program in Real Estate Finance and Real Estate (EPFIRE).

[1] R.J. Shiller, Economia e narrazioni. Come le storie diventano virali e guidano i grandi eventi economici, Milano, Franco Angeli, 2020.

Finanza e Real estate