A Healthy Dose of ESG can Maximize Investment in Health

Growing evidence indicates that companies can do well by doing good, and that by considering environmental, social, and governance factors, they can optimize their performance and strengthen their bottom line. ESG investing is taking on a new and influential role within the marketplace, expanding company considerations into previously unexplored arenas. Most notably, in pursuit of the triple bottom line of people, planet, and profit, a growing number of investors are increasingly considering how the companies they finance impact health, and how those impacts influence investment risk and return.

Connecting ESG to Financial Return

In this next wave of Socially Responsible Investing, or SRI, ESG criteria and metrics have strengthened the connection between principled investing and financial return. Thanks to ESG criteria and indices like GRESB, investors can compare companies across a variety of factors, including everything from energy efficiency to workforce health and safety to board diversity. ESG takes a market-driven approach to push those companies that are lagging behind to do better in order to attract investment dollars. 

A recent study conducted by Bank of America Merrill Lynch found that ESG is one of the strongest signals of earnings risk. By combining ESG criteria with fundamental evaluation factors (e.g. valuation, growth, and quality), investors have the potential to grow their average returns by approximately 200 basis points each year. This same study went onto predict that over the next twenty to thirty years, an influx of up to $20 trillion will flow into ESG equity funds.[1] This means that today’s investors are increasingly looking to ESG performance metrics when making investment decisions. In addition, interest in ESG investing is only continuing to rise, with 66% of investors indicating concern for sustainability disclosures and 77% of millennials saying that they either currently own or are interested in increasing investment in “impact investing” vehicles.[2]

Meanwhile, companies are laser-focused on finding new and innovative ways to apply these ESG standards to ensure they stand out in the marketplace. For the real estate industry, this means that developers, real estate investment trust (REITs), and funds are increasingly turning to health as a way to expand their sustainability efforts and differentiate their projects. In support of this movement towards health, GRESB now recognizes projects for achieving certification under Fitwel – the world’s premiere certification system for optimizing buildings to support health. Leveraging real estate to invest in population health has never been more important, and based on the most recent reports, it is about to get a lot more financially advantageous.

Maximizing Health to Decrease Risk

By optimizing health, the real estate industry can decrease risk through a couple of different avenues.  On the commercial side, developers can leverage the emphasis placed on productivity. The more productive a company’s employees, the greater their financial return. Today, health is a major barrier to productivity with work-related injuries, illnesses, chronic diseases, absenteeism, and presenteeism costing U.S. employers billions of dollars each year. Successful businesses have realized this connection, with studies indicating that companies that prioritize the health and well-being of their employees, tend to perform well and make good investments.[3] Employers are increasingly seeking out workplaces designed to maximize employee health, turning to healthy building certification systems like Fitwel for guidance on attributes to prioritize.

In residential buildings, the growing demand for health and wellness features has helped motivate developers and REITs to prioritize strategies linked with improved health outcomes. Using Fitwel as a guide, developers can boost their ESG scores and strengthen a project’s bottom line. Thanks to Fannie Mae’s Healthy Housing Rewards program, affordable housing projects using Fitwel can even receive a 15 basis point reduction on their loan.  Additionally, reports indicate that multifamily housing designed to support the health of residents can reduce turnover, which can save building owners, up to $5,000 in loss of rental income and maintenance costs per unit.[4]

An ever-growing number of our residents are prioritizing the health of their home environments,” said Mark Delisi, vice president of corporate responsibility at AvalonBay Communities. “By using the evidence-based strategies outlined in Fitwel, we are able to meet this growing demand while also improving our bottom line and continuously strengthening our properties.”

Moving Forward

Developing new and strengthening existing metrics to evaluate the impact of health-promoting buildings on financial return is vital to ensuring its further integration within the ESG movement. In the coming years, as the number of Fitwel certified buildings continues to grow, our understanding of this connection will become increasingly clear. By working with partners like GRESB, that relationship can be translated and quantified, helping strengthen our understanding of how we can use ESG metrics to create the highest performing developments and communities possible.

Written by Sara Karerat, Senior Analyst at the Center for Active Design

[1] Subramanian, S. (2018). Environmental, Social & Governance (ESG): The ABCs of ESG. Bank of America Merrill Lynch.

[2] Ibid.

[3] Grossmeier, J., Fabius, R., Flynn, J.P., et al. (2016) “Linking Workplace Health Promotion Best Practices and Organizational Financial Performance.” Journal of Occupational and Environmental Medicine. 58(1):16-23.

[4] National Apartment Association. Breaking Down Turnover Costs. Retrieved from https://

www.naahq.org/read/partner-perspectives/breaking-down-turnover-costs