ESG Isn’t a “Nice to Have” – It’s a Business Imperative

ESG is no longer just a feel-good label.

Why? Because ignoring ESG today means ignoring risk, reputation, and returns tomorrow.

ESG is a key pillar in our investment processes – we believe it is critical for managing portfolio risk, and future proofing our fund’s investments to generate better risk-adjusted returns and sustainable growth.

There is now growing evidence that ESG factors can materially impact asset performance and valuations.

Take the Sydney office market. Premium office assets with strong green credentials and high NABERS ratings are dramatically outperforming the broader market. These buildings currently report vacancy rates of around 6%, compared to around 15% across the wider market. The drivers are clear: energy-efficiency drives down operating costs, appeal to tenants seeking sustainability credentials, deliver higher occupancy and tenant retention, and ultimately drives asset and investment value.

We have also seen how ESG-related risks can significantly impact reputation and erode shareholder value. Lifestyle Communities (LIC) is a clear example of this, where its deferred management fee model was challenged and the Victorian Civil and Administrative Tribunal (VCAT) ruled in favour of its homeowner residents. The negative media attention caused brand and reputation damage, fall in sales and significant decline in its share price.

The risk isn’t just financial. ESG is clearly a business imperative. Climate risk and meeting regulatory requirements and social expectations, are now core investment risks.

• Investors expect more: Today’s investors want to back businesses that make a difference. Companies with good corporate governance that promote or avoid social and environmental harm attract more capital and deliver sustainable returns.
• Talent cares: People are proud to work at places with a culture and stand for something aligned to their own values. ESG-driven companies attract and retain top talent because they offer a real purpose.
• Regulatory compliance is intensifying: The regulatory landscape is evolving, with more stringent requirements around ESG and strict consequences for non-compliance. Directors are now expected to consider climate risks as part of their fiduciary duties with government mandated climate reporting. The Australian government has also set out sector-specific decarbonisation plans as part of its 2035 emissions reduction target of 62-70% below 2005 levels – calling out the built sector as having a critical role to play.

ESG = smart investing

For us, ESG isn’t about ticking boxes – it’s about future-proofing our portfolio against real and emerging risks.

We’ve incorporated ESG into our investment process, where ESG factors make up 30% of our valuation model, alongside 70% financial and quality metrics. This is how we get a clearer picture of the true risk-return profile of each investment — and build a portfolio designed for long-term growth in a rapidly changing world.