Real estate has traditionally offered homeowners and investors security, stability, cash flow, tax breaks, equity building and a hedge against inflation. In recent years we have experienced  an unprecedented real estate housing bubble as the result of quantitative credit easing practices by the Federal Reserve Bank and monetary policies.

As both inflation and interest rates are on the rise, the global mindset has also shifted towards giving more value to ESG and sustainability standards. The impact on many sectors including real estate cannot be ignored.

What is ESG?

It’s short for Environmental, Social, and Governance. It is a set of factors used to assess how “well” a company integrates sustainability in its investments and policies. This has three major components: environmental, social, and governance.

ESG’s metrics have  been designed to combat systemic global problems such as climate change, racial inequality, and world hunger—in alignment with the United Nations’ Sustainable Development Goals.

Additionally, ESG metrics are been introduced in every sector. The claim is that Real estate accounts for 1/3 of the world CO2 emissions. Therefore, its implementation is “necessary” to address climate change.

The Problem

1.- Distortion in Capital Resources Allocation

In a free market economy, borrowers, lenders and investors exchange funds to finance projects based on the returns that the parties in the transaction intend to earn on their investment. Therefore, those projects that provide the highest rate of return get funded instead of those that do not provide the expected return.

However, the free market allocation of capital resources is threatened by regulations and policies that seek to implement environmental or social policy into the financial system’s framework. Resulting in diminishing returns for real estate investments and undermining growth and innovation.

2.- Banks and Institutions are in Control

The stakeholder capitalism model espoused by Klaus Schwab from the WEF  and other growing list of powerful global economic and political elites, including BlackRock CEO Larry Fink[1] and President Joe Biden,[2] have recently committed to a global “reset” of the prevailing school of economic thought aimed to replace free market economics.

Since there is no a uniform approach to specific benchmarks, measurement, or ratings; instead, there are multiple overlapping systems, each sponsored by different international governmental organizations and financial institutions, abuse by financial regulators who are not tasked by Congress or voters to implement environmental or social policy and lack the necessary expertise to create such a policy is the result.

“A stakeholder capitalism model, which relies on ESG, is designed to ignore consumers and put corporations, banks, and investors in the driver’s seat. In fact, this is primary purpose of ESG. According to advocates of stakeholder capitalism, their proposed shift is needed to tackle the biggest problems of today and tomorrow, including climate change and economic inequality. But, in reality, ESG models do very little to address these issues…” (3)

In order to further illustrate this point, we can also take a look at a United States government-sponsored enterprise called Fannie Mae, which largely contributed to the 2008 housing crisis and along with Freddie Mac lost a combined $47 billion in their single-family mortgage businesses. Despite its monumental failures and role in the previous financial collapse of 2008, government-sponsored Fannie Mae currently offers a suite of  Green Home Financing alternatives for the real estate market.

3.-  Large Corporate Investors benefit at the Expense of Others

Corporations such as BlackRock, which it’s the largest private asset manager has fully attained the benefits of ESG investment. As it has become a top-five shareholder in the vast majority of important global companies and it is perfectly situated to influence ESG decisions via its considerable voting blocs, giving this one financial firm a massive amount of power to shape society.

4.- It leads to government abuse of power

Just a few days ago, the EU made the astonishing announcement that it plans to impose direct carbon taxes on individuals. This just came as people are struggling to keep their homes warm due lack of fuel.  Just the idea of having to pay a tax every time you turn the heater on is unthinkable. Sadly, it will not be long before this plan gets implemented here in the U.S.

Back in January of 2022, Treasury Secretary Janet Yellen made the announcement that we should start a climate hub within the Department of the Treasury to coordinate “wide ranging efforts to fight climate change through economic and tax policies.”

Other draconian measures that are designed to reduce carbon emissions are going full speed ahead right now. For example, countless farms are currently being permanently shut down all over Europe. In the Netherlands alone, thousands of farmers are facing forced buyouts whether they like it or not…

These ESG regulations resulted in catastrophic collapse in Sri Lanka. Against all claims that organic methods can produce comparable yields to conventional farming, domestic rice production fell 20 percent in just the first six months (4). The ban also devastated the nation’s tea crop, its primary export and source of foreign exchange.

“Human costs have been even greater. Prior to the pandemic’s outbreak, the country had proudly achieved upper-middle-income status. Today, half a million people have sunk back into poverty. Soaring inflation and a rapidly depreciating currency have forced Sri Lankans to cut down on food and fuel purchases as prices surge. The country’s economists have called on the government to default on its debt repayments to buy essential supplies for its people.” (5)