The New Ethical Luxury

Three letters are changing how today’s investors view their capital opportunities—ESG. A fresh range of more socially conscious investment options, whether in real estate or other realms, has the potential to benefit the larger community while expanding investors’ portfolios.

The developing world of ESG investment (which stands for environmental, social, and governance) demands analysis not only of risk and growth potential, but also ecological or societal impact. The concept allows for material gain as with any other bankable arrangement, while offering a chance to benefit the community beyond accounting.

Jon Hale, Ph.D. and CFA, is head of sustainability research for the Americas at Morningstar. When using the term ESG, he’s referring to investments in public markets, such as stocks and bonds, often invested via mutual funds and ETFs. In the real estate class, most ESG investment options involve sustainability or affordable housing.

“Real estate investment trusts [REITs] are companies holding portfolios of buildings that are publicly traded, like stocks,” Hale says. “So, yes—there are real estate funds that focus on REITs that have green attributes. Also, sustainable funds in the U.S. often seek out affordable-housing bonds that finance those projects, or those backed by mortgages on affordable homes.”

Hale stresses that anyone with money to grow can add a sustainability lens to their investments.

When it comes to real estate, new-home buyers can make their property purchase or development selections based on their environmental concerns. Kevin McDonald, sales associate, Sotheby’s International Realty-Wine Country Brokerage, represents buyers and sellers in northern Sonoma and southern Mendocino counties, and finds ESG-aware buyers bringing their environmental preferences to the buying or construction processes.

“They want to know what impact a property has on the land and resources,” McDonald says. “Does the home have sustainable features? Is it on or off the grid? What’s the solar-power capability?”

In his wine-country surroundings, McDonald finds a growing collection of turnkey properties with sustainable features. That selection makes it easier for buyers to invest in such homes without the challenges of making their own eco-conscious renovations.

“Still, with my buyers, I find their principles win out over the costs of sustainability,” he says.

Across the hemisphere, Jonathan Sparrow, sales partner, Cayman Islands Sotheby’s International Realty, believes the vast majority of buyers investing in Cayman properties have some personal affiliation with the islands. That makes for some specific ESG decision-making with the potential for personal and social impact.

According to Sparrow, the Cayman Islands has seen a significant number of homes built in the last five to 10 years offering a strong focus on environmental impact, conservation, and ecology.

“Private homeowners and resort developers are willingly investing additional money to lessen ecological impact,” he says. “A great example is turtle-friendly lighting that doesn’t disorient new hatchlings [by] drawing them away from the water’s edge when their natural inclination is to follow the moonlight into the ocean.”

Sparrow highlighted a recent record home sale as a convergence of sustainability and investment success. The Sea of Dreams in Pease Bay was a record sale in 2021 and included a 10,000-gallon rainwater cistern to service one of the largest residential swimming pools on the island.

“Solar power is a natural staple for Caribbean homes—providing clean energy,” Sparrow adds. “Construction methods and materials are utilized throughout our homes for maximum efficiency and reduced fuel consumption.”

With younger generations more committed to sustainability than their older counterparts, the trend toward sustainable investments is likely to increase around the world, Hale says, and those same younger investors “have more sustainable investment funds to choose from than ever before.”