ESG real estate investment trusts are becoming popular for diversifying a portfolio with sound sustainability practices. But which are the best ESG real estate investment trusts to buy now? Let’s dive into it!
The Best ESG REITs
Equinix Inc (NASDAQ: EQIX)
Equinix is in the tech business, and it owns and operates data centers across the globe.
The REIT may come as a surprise on the list as data centers are known for their exorbitant energy consumption.
But EQUIX is doing things differently. The California-based REIT places sustainability at the forefront of its business, boasting one of the strongest ESG ratings in the world.
Through clever ingenuity, the company has developed environmentally friendly technologies that reduce energy usage and boast its ESG performance.
The tech solutions they employ to achieve these results include:
- Green rooftops
- Fuel cells
- Smardt chillers
- Indirect Evaporative Cooling Units (IDECs)
- Aquifer Thermal Energy Storage (ATES)
- Deep Lake Water Cooling (DLWC) system
But it doesn’t end there; Equinix has an ambitious ESG goal for the future.
The ESG REIT announced that it seeks to reach carbon neutrality by 2030. An impressive milestone, considering how much power data centers can consume.
The REIT delivers business performance by protecting the environment. Its sound ESG practices reduce costs while improving returns.
Equinix has a market cap of $60 billion and a price-to-earnings (P/E) ratio of 85x. Shareholders can expect to receive a dividend yield payment of 1.9%.
While their P/E is higher than the average, data centers could have a bright future ahead as demand keeps growing.
It’s estimated that the data center market size will grow at a CAGR of 21.98% from now until 2026.
Equinix’s total ESG risk score is 12 points, which is considered low risk. The total score comprises an environment risk score of 2.6, a social risk score of 3.5, and a governance risk score of 5.7.
Prologis Inc (NYSE: PLD)
Prolongis is the business of logistics, delivering solutions at scale and providing urban warehouse spaces.
Their ESG commitment goes back to 2003, when they were recognized as the number one REIT in corporate governance.
But one doesn’t have to look so far back to see their ongoing achievements in meeting sound ESG standards.
A sustainable building award was recently given to Prolongis by The U.S. Green Buildings Council (USGBC) — a nonprofit organization that supports community development by transforming the built environment.
In 2022 Prolongis also received a prestigious award. This time it was named the number one most sustainable corporation by Corporate Knights — a leading media outlet focused on economic sustainability.
The REIT has received several LEED certifications for its sustainable buildings.
Operating over 195 million square feet of certified sustainable space. LEED (Leadership in Energy and Environmental Design) is the leading global green-building rating system.
However, the REIT ESG initiatives extend far beyond environmental solutions. Prolongis also takes social responsibility very seriously.
As of December 31, 2021, the REIT:
- Trained over 13,000 people through their community workforce initiative
- Spent $226 billion per year in induced economic impact
- Donated $5.4 million worth of rental costs to 30 charities
- Donated 33,000 hours supporting local communities
The ESG REIT also employs good governance practices. Three independent board members play an active role in managing their governance and reputation. Fostering accountability across stakeholders.
Prolongis has a market cap of $104 billion and a price-to-earnings (P/E) ratio of 21x. Shareholders can expect to receive a dividend yield payment of 2.79%.
The REIT stands tall at the top of our list for having the best total ESG risk score of only 9 risk points. The total score comprises an environment risk score of 2.5, a social risk score of 1.7, and a governance risk score of 4.3.
Alexandria Real Estate Equities Inc (NYSE: ARE)
Alexandria Real Estate Equities is a commercial REIT focusing on urban office spaces and research laboratories.
The REIT business model has evolved since its inception in the late 90s, placing ESG as a core focal point.
Their office buildings are revolutionary and stand at the forefront of innovation, earning the REIT over 78 LEED projects certifications.
Their LEED facilities feature curated amenities such as:
- High tech greenhouses
- R&D facilities
- Health and wellness facilities
- Geothermal energy harnessing
- Highly energy-efficient building design
- Solar panels
The post-pandemic world has seen some companies go fully remote, a trend that could affect office space REITs. By focusing on curating spaces with a holistic approach, Alexandria may be able to better position itself against its competitors.
Alexandria houses tenants like Moderna, Pfizer, Eli Lilly & Co, and over 340 non-profit organizations.
Laboratories might be good tenants, particularly with names such as Moderna and Pfizer; however, they do carry a political risk, which could carry some risk for investors.
Among other ESG achievements, the REIT recently designed the first all-electric laboratory building in San Francisco.
Alexandria Real Estate Equities has a market cap of $24 billion and a price-to-earnings (P/E) ratio of 44x. Shareholders can expect to receive a dividend yield payment of 3.17%.
The total ESG risk score of Alexandria Real Estate Equities is 15 points, which is considered to be low risk.
The total score comprises an environment risk score of 3, a social risk score of 6.3, and a governance risk score of 5.5.
Host Hotels and Resorts Inc (NASDAQ: HST)
As you may have guessed, Host Hotels and Resorts is a hospitality REIT. The REIT is one of the largest in its class, owning over 81 properties and hosting over 45,000 rooms.
Many of the properties are considered to be luxurious, featuring 5-star amenities that attract a myriad of upscale guests.
But its amenities extend far beyond comfort and into making a positive with sound environmental stewardship.
HST has nine LEED-certified properties, including three LEED gold hotels, and an extra 14 LEED properties under development.
For HST, 100% of its properties feature energy and water-efficient technologies, including LED lighting and over 90 EV chargers.
In 2022 alone, as part of their corporate citizenship program, they have:
- Provided over $43,000 in aid to Ukraine
- Donated over $50,000 to diversity, equity & inclusion
- Provided hundreds of education, health, and food kits for the needy
As part of their governance initiatives, most board members are independent and regularly meet without management.
Host Hotels and Resorts offers one of the most attractive valuations on our list. The REIT has a market cap of $13 billion and a price-to-earnings (P/E) ratio of 16x. Shareholders can expect to receive a dividend yield payment of 2.65%.
Host Hotels and Resorts’ total ESG risk score is 14 points, which is considered low risk.
The total score comprises an environment risk score of 3.3, a social risk score of 5.6, and a governance risk score of 4.9.
Regency Centers Corp (NASDAQ: REG)
Regency Centers owns, operates, and develops shopping centers across the United States.
Its portfolio is quite impressive, boasting over 404 centers that total over 54 million square feet of retail space.
Regency has a 95% occupancy rate, including top-anchored grocers such as Whole Foods Market, Publix, Safeway, and Trader Joe’s.
In its 2021 Annual Corporate Responsibility Report, the company reinforced its goals and strategies for sustainability.
- A flexible work location policy
- Progress on their diversity, equity, and inclusion (DEI) strategy
- Over 1.4 million was given to charitable causes
- Exceeded its 2021 goals for the reduction of greenhouses gasses and waste generation
Regency Centers was also awarded numerous recognitions for their ESG performance in 2021, including:
- GRESB Green Star for the seventh consecutive year
- Recognition among the “Best Places to Work” by the Jacksonville Business Journal
- Included in the top 100 most responsible companies list by Newsweek
- Endorsed for its emission reduction target by the Science Based Targets initiative (SBTi)
Regency Centers Corp has a market cap of $11 billion and a price-to-earnings (P/E) ratio of 24x. It offers the most generous compensation on our list, as shareholders can expect to receive a dividend yield of 4.02%.
The total ESG risk score of Regency Centers Corp is 11 points, which is considered to be low risk.
The total score comprises an environment risk score of 3.6, a social risk score of 2.9, and a governance risk score of 4.4.
Related: The 7 Best Retail REITs To Buy Now
Are ESG REITs a Good Investment?
The global shift in sustainability policy coupled with the risks of climate change could make ESG REITs an important portfolio piece for investors.
ESG real estate funds practice sound environmental stewardship, social responsibility, and good governance. When properly employed, these practices ensure sustainable business performance and accountability.
For example, ESG real estate investment trusts can generate extra revenue by saving energy and building trust in their communities.
Institutional investors are also embracing ESG investments and seeing things differently.
Previously, ESG investments were considered risks due to non-compliance uncertainties, but things have changed.
Institutional investors now see ESG as an attractive opportunity. They are drawn to its potential to generate higher returns than non-impact-oriented companies.
According to Nareit’s REIT industry ESG report, nearly all of the 100 largest REITs engage in public reporting of ESG activities.
Investing in ESG companies offers shareholders an opportunity to add value to their communities and their environment while producing returns — but why choose a REIT?
Real estate investment trusts offer other attractive benefits to shareholders, like passive income and tax advantages.
For example, qualifying REIT profits do not count as taxable income for the REIT.
Ultimately, time shows that investment decisions made with a holistically measured approach pay off for both companies and shareholders.
Investing in companies with sound ESG commitments and initiatives could be a long-term success driver.
Now that you know more about ESG real investment trusts, you might consider adding one (or more) to your portfolio.
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