REITs have seen a large increase in investor interest in ESG with greenhouse gas emissions (GHG) and climate change top of mind. REITs also report an increase in interest by investors in climate related risks.
Eighty-seven equity REITs participated in the 2021 Nareit ESG survey of the REIT industry, representing 78% of the FTSE Nareit All REITs Index’s equity market capitalization. In the survey, 95% of respondents by market capitalization indicated investors requested information about various ESG topics. These REITs reported that the top two topics they were asked about by investors in 2021 were greenhouse gas (GHG) emissions (90% by market capitalization) and climate change opportunities and risk (86% by market capitalization). Diversity and inclusion fell to number three in the 2021 survey after topping the list in last year’s study. Chart 1 shows the breakdown of popular ESG topics with their ranking from the 2020 survey.
This year’s survey showed significant growth among survey respondents reporting an increase in ESG reporting requests from investors over the previous year. Between 2020 and 2021, 78% of REITs by equity market capitalization reported an increase in investor requests compared to nearly 62% in last year’s survey. When asked how much of an increase in requests they experienced, 97% responded that the number of requests increased by more than 5% year-over-year with almost 17% of the respondents seeing an increase of 20% or more in ESG reporting requests. Chart 2 shows the breakdown of responses for those REITs that saw an increase weighted by market capitalization.
In addition to general ESG topics, the survey separately asked if investors increased their requests for information about climate-related risks in REIT portfolios: 87% indicated that investors requested climate risk information in 2021 versus 77% in 2020. The risk topic top of mind for REIT institutional investors is once again physical risk with 62% of respondents queried in 2021, an increase from 51% in 2020’s survey. Transition risk (43%) moved up in popularity to the second most commonly requested topic, replacing last’s year’s topic of extreme weather (43%). Chart 3 shows a breakdown of responses for those REITs that had investors request information about climate risks with the rank from the 2020 survey in parentheses.