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The importance of ESG for health care real estate investors

ESG (Environmental, Social and Governance) is a somewhat nebulous concept, encompassing a broad range of feel-good notions. In the health care sphere, it is often emphasised that this involves more than just reducing emissions. Whilst the ‘S’ part is perhaps the most poorly-defined of the three concepts, saving lives must surely come under it!

Health care real estate investors are increasingly pushing for their investments to meet stringent ESG criteria. The push from investors is actually currently stronger than the push from regulators or operators. Whilst operators may be unwilling or unable to make the upfront investments necessary to ensure their buildings meet such standards, real estate investors see this as detrimental to the long-term value of their investment.

Stephane Pichon, of Your Care Consult, tells us: “You get cheaper financing either from banks or from bond investors the greener/more ESG you are. Typically it should be positive because you have greener, more efficient buildings, but it will come with a cost – because you have to insulate a building or put up solar panels, which someone has to pay for. And in a high interest environment that’s more difficult.”

You might think that for real estate investors the concept would all be about their buildings being energy efficient. Not so, according to Alberto Fernandez, CEO of Healthcare Activos, a Spanish REIT, who has been working with Moody’s, a credit-rating agency, to devise KPIs for health care real estate investors to focus on.

“Every single institutional investor is speaking about ESG. Everyone is focusing on the E part, which is fine, but guess what, we save lives! That’s why we’ve been working with Moody’s. In July we became the first real estate company in Europe to get a social rating based on social KPIs, in order to set the tone for what needs to be measured.”

Fernandez tells us the KPIs cover things like dependency ratios, having ‘sectorisation’ (which means having the accommodation divided into living units of no more than 15-20 residents), and having care homes in the right catchment area (having a ratio of 15 beds for 100 people over 80).

“We like to call ourselves the ‘leader’ in Europe, even though we not the largest health care REIT,” he says. “The leader is the one that needs to set the tone, to go ahead of pack!”

We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.