The ESG Trifecta for Real Assets: Why You Need Strategy, Technology, and Process to be Successful

The real asset industry is under increasing pressure from investors and stakeholders to improve environmental, social, and governance (ESG) practices.

According to BlackRock’s most recent Global Real Asset Outlook, the real asset sector received $203B of cash inflows in 2018. Infrastructure had its second consecutive record breaking year with $85B raised. The growth in real assets is expected to continue due to the infrastructure sector’s strong fundamentals, with 50% of that growth attributable to power and renewables as the global desire to decarbonize the economy increases. While funding records continue, three key trends will emerge: 1) greater competition, 2) more international focus, 3) increased focus on asset resiliency, sustainability, and ESG in general. Many real asset fund managers not prioritizing ESG may be at risk of raising their last fund.

In response, managers across infrastructure, real estate, and other sectors have a desire to move away from “check the box” exercises and toward a systemic strategy to measure, improve, and report on ESG performance. However, based on our experience and hundreds of meetings with heads of ESG and other C-level executives, many of these companies are struggling to get an ESG plan started, especially mid- and small-market firms that fear they lack the resources to “do ESG right.”

The good news is that emerging technologies and best practices are making ESG more achievable for real assets. In our work over the last decade, the most important takeaway is that an ESG program must include strategy, technology, and process to be successful. In this piece, we summarize four key trends driving more firms to make ESG a core part of their business and lay out a roadmap to help aspiring ESG leaders begin their journey.